Factors That Affect Standard Real Estate Commissions

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All real estate commissions are negotiable. Any real estate agent will tell you that, even if it's somewhat misleading. Answering any question about commissions directly could open an agent to prosecution by the federal government, so agents are advised not to discuss it.

How Anti-Trust Laws Affect Real Estate Commissions

Anti-trust laws prohibit collaboration among competitors to set certain prices. For example, the Sherman Act and the Clayton Act are two types of anti-trust laws. The government entities that investigate such claims are the Federal Trade Commission and the Antitrust Division of the U. S. Department of Justice.

You might go to real estate websites and portals and read questions and answers about standard real estate commissions. Some agents will mention a percentage and others will agree or disagree with that percentage, when in fact, that online discussion could be considered price fixing.

Full-Service vs. Discount Brokers

Sometimes sellers will call several real estate agents—and without so much as introducing themselves—blurt out, "What is your commission?" as if comparison-shopping the price of milk. A better way to approach the subject, if a seller is shopping solely on price, is to ask if the agent is full-service or a discount broker. If you expect a discount, be upfront and limit the search to only those agents who offer discounts.

There are situations where a seller might prefer to hire a discount broker and not engage the services of a full-service agent, who may charge a slightly higher fee. These sellers typically are unaware of what experienced agents can do for them. Frugality could wind up costing more money in the end.

You can certainly go with a less expensive and most likely less experienced agent. Just don't be penny-wise and pound foolish. The discrepancy between similar competitors comes down to about a 1% difference.

Differences Between Standard Real Estate Commissions

The higher the caliber of home, the less inclined sellers are to ask a highly experienced real estate agent to discount their fee. This is most likely because with luxury home sales there are larger sums of money to lose (or leave on the table), so sellers might pay a little bit more to hire top-notch talent to negotiate for them. From appraisals to home inspections, much can go wrong after signing a purchase contract. Expertise is often worth the additional expense.

Think about it. Experience can be the difference between selling your home for $1.3 million or a cash sale of $1.5 million. Sellers may trade a $13,000 difference in commission in exchange for $200,000 in price.

This doesn't mean a standard real estate commission should not be discussed in the initial conversation. Just don't make it the sole factor for qualifying an agent. Agents who charge the top commissions could very well set the standard for that type of performance, just like agents who routinely charge much less. In other words, consumers tend to get what they pay for when it comes to a real estate agent.

Choose Your Real Estate Agent Wisely

Vet your agent wisely, especially for complicated situations. For example, you might prefer an agent who thinks like a lawyer over an agent who behaves like a used car salesman. There are all kinds of people who hold a real estate license. Not all real estate agents are the same. You've probably heard that the top 10% tend to sell 90% of the homes.

The wrong agent would be a person without enough experience to help a seller navigate the delicate situations that can go wrong, such as a low appraisal or a Request for Repair.

In other words, if a seller believes they are "saving" $5,000 because they hired a cheaper agent than the one they preferred, that seller could end up losing say, $10,000, over another issue that the cheaper agent cannot resolve.

The commission is one of many closing costs and fees a seller will pay. It is generally the highest fee, but the other fees can also add up.

Research the fees agents charge in your area by calling around and talking with agents.Yes, you can ask about their standard real estate commissions, just don't make it the first question. Also, realize that fees differ based on locale. What might be considered a standard real estate commission in sprawling Sacramento could be more than the standard real estate commission charged in a more self-contained community such as San Diego.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

Article Sources

  1. National Association of REALTORS®. "Code Comprehension: Article 16 — Commissions Are Negotiable." Accessed March 23, 2020.

  2. Federal Trade Commission (FTC). "The Antitrust Laws." Accessed March 23, 2020.

  3. The U.S. Department of Justice. "Competition in the Real Estate Industry Brokerage Industry. C. Non-Traditional Business Models." Accessed March 23, 2020.

  4. National Association of REALTORS®. "Quick Real Estate Statistics." Accessed March 23, 2020.

  5. Consumer Financial Protection Bureau. "Closing Disclosure Explainer." Accessed March 23, 2020.