Negotiating Real Estate Commissions

“RETURNTODC” asked some challenging questions to realtors yesterday. Here was the first:

Why are commissions 6 percent? In every other country in the world, commissions are much lower. Typically, they are around 3 percent? In Britain for example, commissions are less than 2 percent.

Becky Trout, a REALTOR® from Florida, was quick to answer:

All commissions are negotiable (some people are not aware of this), and if the seller is willing to pay 6%, then that’s what it is. If they negotiate it down and the realtor is willing to list for a lower commission (which all agents will not do) then you can get your home listed at a lower commission. Commissions vary from area to area. Some agents are greedy and will not list a home for less than 6%, and some agents are not so greedy (like myself) and will list at a lower commission.

Sounds good. But to her credit, she follows up with the real problem with negotiating commissions:

But you have to remember the lower you go, the fewer the agents that will show that property. If they find out they are only going to get say 1.5% on a home versus if they sell the one down the street and get 3% for that one, they will sell the one down the street and bypass the one for 1.5% all together. It’s illegal to do, but agents do it.

It’s illegal to do, but agents do it. There’s the rub. Many agents do it because they know they simply won’t get caught. I have heard the comments like, “If I have a qualified buyer in the car, why would I want to show them a property with an X% commission when I can show them one with Y% and make Z dollars more?”

Taking it a step further, some agents refuse to show properties from a discounter at all, even if the buy side commission is a full 3%, because they simply don’t want to validate a discounter’s model.

It’s actions like these that have the led the Department of Justice to launch a full investigation of real estate practices in several states.

It’s illegal to do, but agents do it.