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Your First Negotiation: the Agent's Commission

By Elizabeth Razzi
Sunday, August 10, 2008

Home sellers could save money by thinking of real estate commissions as an agent's asking price. It's something that's open to negotiation.

A new survey shows that sellers who were successful in negotiating lower commissions reported being just as satisfied with the service they received as were sellers who paid a commission of 6 percent or more.

Consumer Reports magazine writes in its current issue about a survey of its readers who tried to sell a home from spring 2004 to spring 2007. Forty-six percent tried to negotiate a lower commission, and among that group, 71 percent succeeded. Even when they paid commissions of 3 percent or less, sellers reported being as content with the service they received as those who paid 6 percent or more.

Mark Kotkin, director of survey research for Consumer Reports, said he was surprised to find so little difference in consumers' opinions. "They saved thousands of dollars, and they were just as happy," he said.

It's fair to note that the survey covered some of the peak housing-boom years, when listings might have stayed on the market only a few days. It may be tougher to negotiate with agents now because they face the prospect of paying marketing costs for months. And it would be no surprise if sellers now express less satisfaction with agents who initiate difficult discussions about the need to lower their price.

Six percent is the number that comes up most frequently when talking about commissions. But nothing says 6 percent is a normal, typical or full-service fee. According to the Justice Department's Antitrust Division, the average commission has actually been in the 5 to 5.5 percent range throughout the past decade. You might bring that up in your negotiations if an agent asks for 6 percent -- or more.

Consumer Reports said two types of agents are more likely than others to agree to a reduced commission. One is an agent working for a Re/Max brokerage. That's probably because Re/Max has an unusual business structure in which individual agents pay for expenses that are usually picked up by other brokerage companies. They have more control over their own businesses. The magazine said you might also have luck negotiating with an agent working for an independent brokerage, one that is not affiliated with one of the national chains.

Chantilly-based Long & Foster is the nation's largest independent brokerage. Brenda Shipplett, president of the company, expressed some doubt about the idea that independents are more willing to negotiate. But, she added, "commissions have always been negotiable."

"Sometimes it's 6 percent; sometimes it's less; sometimes it's more. It depends on what the agent and seller agree to," she said.

Actually, sometimes it depends on what the agent, the agent's broker and the seller agree to. Brokers who manage local Long & Foster offices differ in their willingness to allow agents to negotiate discounts, Shipplett said. Remember, your listing contract is actually with the broker, even though you're negotiating with the agent who works under the supervision of that broker. "Some managers hold it a bit tighter," Shipplett said. "They want to ensure enough dollars are coming in."

She said a broker might allow an experienced agent more leeway in negotiating commissions than a newer agent. But that doesn't mean negotiation isn't possible with an agent who's on a shorter leash. It simply means you need to get the broker's agreement to a lower rate before you sign the listing contract.

Samson Realty, also based in Chantilly, has built its business on discounted commissions. The company, which works in Northern Virginia and parts of Montgomery County, calls itself the "home of the 4 percent to 4 1/2 percent full-service listings." Sellers pay only 4 percent if they also use a Samson agent to buy their replacement home; otherwise the selling commission is 4 1/2 percent. Buyers get a commission rebate equal to $500 per $100,000 of the purchase price.

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