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John A Soricelli Jr

Negotiating Real-Estate Agent's Commission

Friday, December 3, 2010 - Article by: John A Soricelli Jr - J&J Coastal Lending - Message

Q: I am about to list my house, and have interviewed three real estate agents. One agent charges 5%; the other two say 6%. I was most impressed with one of the agents who wanted 6%, but given how far home values have fallen in the neighborhood these past few years, I need every nickel. I'd like to try to negotiate a lower commission with the agent I prefer. But I don't know if she'd be offended if I asked, or how I should go about it. Thoughts?


--Boston

A: Your agent is a professional haggler, so I doubt she'll be offended if you ask if she's flexible on her commission.

Whether she'll budge is another matter.

According to RealEstateEconomyWatch.com, real estate commissions fall during housing's boom times, when selling a house doesn't take much help, and rise when the market slows. Nationally, the average commission rate reached 5.29% in 2009-a nine-year peak-compared to 5.02% in 2005. (That's still lower than the 6% commission your agent wants, however; the last time commissions reached that level was in 1992.)

Yet even though commission levels have been rising, falling home prices and a poor economy have taken a toll on agents' incomes. Last year, the average income for agents was only $35,700, down 17% from two years earlier, according to the National Association of Realtors. Add to that a general decline in home sales--down by about a third since 2005--and you can see why agents are protective of their commissions

Nevertheless, the fact that many agents need listings to boost their flagging income does give you some leverage. You'll do best in your negotiations if you give something in exchange for a reduced commission. For instance, you could ask the agent to both list your home and to represent you when you shop for a new home. Or you could offer to do things that would defray her marketing expenses. For example, you could provide food for open houses for brokers and buyers or, if you're an excellent photographer, make a digital album of your home taken during various seasons of the year that can be displayed on a laptop on your kitchen table while your house is being shown.

But in the end, it may be enough simply to mention that another agent has offered to list and market your house for a lower commission, and ask her to match it. She may not be able to; if not, find out why. If the reason is that she's providing more services than the 4% agent, the higher commission may be worth it. But if she's paying a higher commission split to her broker than the 4% agent, it may be that she's simply not as productive as that agent (top producers usually get a higher percentage of the total commission in exchange for the greater volume of business they bring in). In that case, the 4% agent might actually be the better choice.

By June Fletcher

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