Negotiating the Commission with a Real Estate Agent
by Michael M. Kloian
I look at the big picture this way: I view this as “time is money”. If I have to pay a small commission and can sell a home quicker than so be it. In the long run I will pay out less in advertising costs, lower interest to the bank, fewer utility bills and other incidentals that eat away at the bottom line. Except for one recent experience no agent has ever come through my door with a legitimate buyer ready, willing and able to purchase. Most have been fast talkers looking for a listing hoping to make a quick, easy buck.
One day, I had a visit from a real estate agent only minutes past closing time. He was far from his normal market territory. He lived and worked an hour and half drive away. It turned out he was related to the buyers and decided to help them into their next home, and presented himself as their agent (buyer’s agent) only after he was asked. It appeared he was legitimately under contract with the buyers to represent them in the transaction. This meant he was looking out for their best interest.
After previewing my spec homes his buyers fell in love with one. The agent approached me that same evening to discuss price and terms. At first he wanted to be paid an enormous commission, which I flatly refused. After speaking to his broker he then agreed to 3%. During final negotiations we agreed to split 3%. Since I was asking $139,900 for the home I added another $2,100 to the price and agreed to pay a fixed dollar amount commission of $4,200, not 3% of the sale price, which only cost me 1-11/2% or $2100 an amount I would have gladly come down to for any qualified buyer.
The fixed “dollar amount commission” is a good idea to lock into instead of the fluctuating percentage, especially if there is a counter offer involved. Once you agree in writing to a percentage commission of the sale price and adjust the price upward for other buyer compensations (as you will learn in subsequent sections) you will actually be paying more money in commission than originally intended.
The purpose of this example is to illustrate that everything is negotiable. If you have to deal with agents and they seem to have a legitimate buyer remember this story to illustrate that nothing is carved in stone when it comes to commissions. There are situations when the commission may be paid by the buyer, as in this example, and there are situations where the commission won’t cost you a dime.
Some agents can be devious. They may dissemble, deceive and try to convince you that they have a buyer in their pocket for a home “like yours” and if you want to sell your home they can get your asking price from their buyer but you will have to pay a commission.
If an agent does bring a legitimate buyer to see your home and calls on you to arrange negotiations, you can give the agent several options. Tell the agent that one half the normal commission, or no more than 3% of the sale price is acceptable so long as the buyer offers the minimum acceptable price. If the agent balks let the agent know you wish to be treated as if you were the listing agent, therefore keeping your half of the commission (hypothetically speaking). This is legitimately done in any co-op sale through two brokerage firms.
If the agent throws all the “legal” stuff your way about your not being qualified to close the deal, or handle the title search, etc. and more commission is needed, then be prepared to give the agent the name of the title insurance company who will handle your title insurance policy and closing. This will not only impress the agent that you’ve done your homework but will end the conversation as well. For your information real estate agents neither “process a sale” or a loan not do they “close the deal”. They simply arrange things as easily as I will teach you to do in forthcoming sections.
For more information please read Sell it By Owner and Save. Michael M. Kloian
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