It asking a Realtor to reduce commission a good idea? What if it’s a friend? Well, the answer depends on whether you wish to potentially insult your agent friend and mix business with personal matters.
We’ll discuss how commissions work when buying and selling, what agents typically say when you ask them to reduce commission and how you can save when selling and buying a home.
What's the typical commission structure for sellers?
Commissions are negotiable and will vary by listing, or at least that’s what we’re always told officially. But what commission structures are the most prevalent?
Well, as it turns out, the typical real estate commission in NYC and nationwide is 5% to 6% of the sale price, with 6% being more commonly seen especially in pricier metropolitan markets like Manhattan.
This commission is usually split according to local MLS rules (i.e. typically equally) between the listing, or seller’s, agent and the buyer’s agent. If the buyer doesn’t have an agent, then the listing agent typically keeps the entire 6% commission.
This means the typical seller’s agent stands to make 3% to 6% of the sale price in commission, depending on whether he or she co-brokes with a buyer’s agent.
Alternatives are available
Sellers can opt for reduced commission structures for both full-service as well as DIY flat fee MLS listings. For example, the REBNY RLS only requires that listing agents co-broke at least half of the total commission in favor of buyers’ agents.
As a result, sellers are able to take advantage of our 1% for Full Service listing structure, where sellers pay 1% to the listing agent but still offers a competitive 2% to 3% to buyers’ agents.
Other MLS systems are more flexible still, such as the HGMLS where listing agents are only required to co-broke any non zero amount to cooperating buyers’ brokers.
A Full Service Listing for 1%
Sell your home with a traditional full service listing for just one percent commission.
Buyer agents typically make half of the total built-in listing commission that the seller’s agent pre-negotiates with the seller, or typically 3% of a 6% seller paid broker commission.
The co-broke, or commission, paid to buyer’s agents will vary based on the listing and MLS rules of course. For example, in southern Brooklyn the Brooklyn MLS does not require equal co-broking, and as a result listing agents often co-broke only up to 1% to buyers’ agents.
It’s more common to see a equal commission split for a 6% listing in higher priced areas like Manhattan which are covered by the REBNY RLS.
For context, given that the average sale price for a NYC property is $2 million, 6% equates to $120,000 in broker commission. This means your typical buyer’s agent in NYC can earn $60,000 on your average deal!
Can you ask a buyer's agent to reduce their commission?
Most buyers will not realize that they can ask the buyer’s agent to reduce their commission by rebating it to the buyer. After all, most traditional buyers’ agents will not bother bringing up the topic of commission, except by mentioning if asked that it’s free to work with them because they’re paid from an unspecified split of the built-in listing commission.
This behavior leads many buyers to feel guilty for all the “free” work that the buyer’s agent is doing on their behalf, and many naive buyers even ask whether it’s okay to tip their buyer’s agent for all their help.
After all, most buyers have an overly healthy amount of respect when it comes to asking about how much money someone makes.
So is asking a Realtor to reduce commission a good idea? Well, it depends. Savvy buyers who have done their research on the legality and tax implications of a commission rebate can ask their buyer agent friend to give up part of his or her commission.
However, this buyer agent friend might be insulted that the buyer is asking to take away part of his or her livelihood, and furthermore most traditional brokerages prohibit discounts when it comes to commission.
Personally, we always think it’s a better idea to keep personal and business separate. Why not sign up for a Hauseit Buyer Closing Credit and work with a traditional, established partner broker who has already agreed to give you up to 2% back at closing?
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Our traditional partner brokers never openly discount which means less disruption and better execution for you.
Reasons listing agents give for not reducing commission
Listing agents will have all sorts of reasons for declining to reduce the commission structure. For starters, unscrupulous agents might try to convince sellers that paying 6% in commission is some sort of state or federal rule. If that doesn’t work, they’ll say that their local MLS (RLS for NYC sellers) prohibits anything less.
This of course is only partially true, as the REBNY RLS only requires co-broking that is “at least” equal in favor of buyers’ agents.
This protects buyers’ agents from situations where the listing keeps the majority of the commission and only co-brokes a tiny amount to buy side agents. It is not meant to enforce a 5% to 6% commission regime.
If a savvy seller brings up this point, then the listing agent may resort to belittling any brokers who would accept less in seller broker commissions, and how they’ll be less motivated or less able to provide quality service due to the reduced fee.
This, of course, is completely bogus after all the common real estate agent lies have been exhausted. Listings have value inherently because agents benefit from increased exposure, branding and potential referrals and recruits from having a listing, regardless of its commission structure. It’s up to you to decide whether these scare tactics will prevent you from saving money.
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Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.