Negotiating Home Sales Commissions in Dallas
- April 20, 2015
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You’ve decided it’s time to sell your Dallas home. You’ve selected three agents that you’d like to interview to represent you as your Realtor. You know how much you'd like to get from the sale of your home, and if things go well you may end up with a nice profit. Suppose you sell your home for $500,000. After you pay your $100,000 mortgage balance off you’re excited about the $400,000 you’ll be able to put into the bank (less other closing costs).
You meet with the first agent on your list. You talk about the sales commission. This agent wants to charge you 8% of what your home sells for. That’s $40,000. You’re probably shocked at that number. You’re wondering what type of sales job warrants that amount of money. You begin imagining lavish open house parties where streams of people breeze through your home with martinis and sophisticated wine. You imagine your agent walking door to door looking for buyers for your house. You can see your home on the cover of premier real estate sales publications. That agent will need to work very hard for that 8% commission!
You meet with the second agent who only charges 6%. Now you’re down to paying out $30,000 in sales commission. That’s a little better. But still, that’s a large sum of money. The open houses are no longer lavish cocktail parties in your mind, but maybe backyard pool party barbecues every Saturday and Sunday until the agent finds a buyer for you. Maybe the agent can put an advertisement in the weekly newspaper.
Finally the third agent offers to sell your house for only 2.5%. Finally. What a relief. Now it’s only going to be $12,500 that you’ll have to kiss goodbye. In your mind, though, are you wondering why this agent’s commission is so low? You should be.
The most important thing to remember, for agents as well, is that real estate sales commissions cannot be fixed. It’s a violation of antitrust laws for an agent or broker to set a fixed commission schedule. The sales commission is always negotiable. If an agent says their commission is always 8%, that may be true. That may be what home sellers always agree to pay them. And the agent can refuse to drop below 8%. Remember, though, that it’s negotiable. Always suggest dropping it to a number that you’re comfortable with. If they refuse, you can either walk away or accept it. But they’re not going to change it if you don’t ask.
It’s important to know, too, that the agent doesn’t always get to keep the entire 8%. In many cases that agent will have to split the commission with their managing broker. The broker pays for the office rent, office supplies, fees associated with the local MLS to have real estate listings on the internet, and so on. The commission splits between agents and brokers isn’t fixed either. Some agents pay a “desk fee” each month but then keep 100% of their commissions.
The sales commission is further split between the seller’s agent (your agent) and the agent who brings the buyer to the closing table (the co-broker). This is usually a 50/50 split, but it doesn’t have to be. Typically it’s the seller who determines what percent of the sales commission will go to the co-broker. Many sellers will agree on a 50/50 split.
All agents are aware of what the co-broker’s compensation will be before they show their buyer a home. It’s unethical for an agent to refuse to show a house based on their own compensation. A buyer’s agent will of course be more excited to show a home that offers $20,000 in commission versus a home that offers nothing for a commission. Home sellers, you want all buyer’s agents to be excited about showing your home to buyers.
When you’re talking to that listing agent who agrees to work for a 2.5% sales commission, ask how much is going to the co-broker. Is it $1? That co-broker needs to be as motivated as the buyer. Body language says a lot that words cannot. And remember, you get what you pay for. If you think you’re getting a discount on the commission, you may be getting a “discount” agent!