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Understanding Commissions

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The first thing to know about commissions is that commission rates are not fixed by law. This is a free market, and you may negotiate with the company you choose to handle your listing. Having said that, let's take a look at this issue from the other side, from the realtor's viewpoint. Although not fixed, there are "typical" commission structures. That is to say that real estate brokers have determined over the years what sort of commission rates can make the company profitable, and, in this free market, it's hard to get a higher split than what others are willing to work for, so the balance of all these issues has pressed the number at around six percent. Although the market is tough out there, you may find it hard to find a company to work for too much less than that. In the tough markets, only the strong survive, and that is exactly the wrong time to be taking listings at too much of a reduced rate. Remember, the commission is being split between your listing brokerage, and the company who brings the buyer to the transaction, so your company in a typical six percent deal is making three percent, while the "selling brokerage", that is, the company who brings the buyer, is earning the other three percent. Your company "offers compensation" through the multiple listing service a portion of their overall commission to other brokers bringing buyers to the transaction, usually 50/50, but not always. You would be wise to write in your listing agreement that the selling brokerage be offered a full three percent, regardless of your overall commission split. Let me explain this further. If you have agreed with your listing company on a five and a half percent commission, make sure they will offer a full three percent to the selling broker, and take the short end of two and a half for themselves. The reason is simple. If there are many other properties out there like yours, which do you think an agent with a good buyer is going to show first? The one where he makes a full three percent, or one where he makes only two or two and a half percent? Real world, we all know the answer. Make sure your property is looked at by the other agents in the same economic light as any other deal out there. Or even better, offer bonuses to the selling agents, get your property shown first.In negotiating commissions, remember that, most agents' hands are tied by their brokers in how low the commission can go. This is also related to the dollar value of the property being sold. If your home will sell for $400,000, you might have an easier time of getting a five percent commission than if you were selling an $80,000 condo. The salability, that is, the likelihood of the listing being converted to dollars in the brokers pocket as well as the low total commission from a relatively small $ 80,000 transaction will make it difficult for the condo owner to get less than a six percent commission rate in this market. You might however, be able to negotiate a "variable rate commission" (most agents won't even know what you're talking about!) on most transactions. That is to say that if the the same broker you're listing with also brings the buyer to the transaction, they will agree to take a lower commission on the deal. They are simple business decisions the broker must make....some look at each deal seperately, others make general rules of thumb, and don't vary. You will have to test the waters, but don't be afraid to negotiate the commission. And, remember, the overall savings in 1/2 percent in commission is really not all that much relatively; don't make it the ONLY reason you select a broker for your listing. One comment about selling a home without an agent..."By Owner"....you're in for so much more grief than you can imagine! Think twice. If you try it, at least get some good advice so you can truly consider all the pros and cons. You will still likely be offering compensation to brokers who bring a buyer, so you are working very hard and risking your personal safety to save three percent, and you won't even be visible to 80% of the good buyers out there. Negotiate a good deal with a competent company and let the system work for you.