How to Negotiate with a Listing Agent
– Chester Karrass*
"You can't always get what you want, but sometimes you get what you need."
– Mick Jagger & Keith Richards
"Let every eye negotiate for itself, and trust no agent."
– William Shakespeare
It's a safe bet that none of the above were talking about real estate — and Shakespeare certainly wasn't dissing real estate agents — but their comments are worth remembering when you're ready to sell your home. That's because of one universal but seldom-mentioned fact: When it comes to real estate contracts, everything is negotiable.
Including commissions. That's right, the 5–7 percent commission that has been the bedrock of the residential real estate industry is not cast in stone. And while your agent may have completely valid reasons to charge a full commission, you're equally entitled to request a break.
But you can't just ask for it — you have to back up your request with reasons why a discount is warranted. And, it turns out, there are several situations where requesting a discount isn't just reasonable, but also reasonably justified:
- Your home commands a mega-mansion price. Even at 5 percent, a million-dollar home brings in a commission of $50,000, which is nothing to sneeze at.
- Your agent also represents the buyer. Your agent won't have to split the commission with anyone, so she might accept a lower percentage.
- Your home sells within the first week of listing. A quick sale involves less work than a slow one, so request a clause stipulating a discount for near-instant sales.
- You perform some of the services ( pricing, providing photography, showing the home, etc. That's worth something .
- You're willing to have the agent handle the purchase of your next home. Two transactions, two commissions — there's no harm in asking for a discount on both.
- You're in a red-hot real estate market that has swelled the ranks of local real estate agents. More competition may be bad for their business, but it's good for you.
Clearly, there's some wiggle room, and if one or more of the above apply, it's not unreasonable to request a discount of 1–2 percent on the commission. On a $400,000 home, that puts an extra $4,000–$8,000 in your pocket.
Remember, though, that these are not demands, but rather, points that are worth raising. Your real estate agent may agree to some, counter others, or even suggest alternative arrangements. It's not an argument or a battle of wills. It's a negotiation.
Coming to TermsAnd commissions are not the only issue. When considering signing a listing contract with an agent, consider the following:
- Length of contract: Some contracts require a six-month, exclusive listing. In all but the slowest markets, a well-marketed house should sell before then. Request a shorter listing, say, 60–90 days.
- Post-listing-period sales: Some agents stipulate that if they deliver a buyer after the listing period expires, you'll still owe a full commission. Request that this "protection-period" clause be stricken or shortened.
- Hidden fees: Read the fine print to spot any additional fees for specific services, such as "administration" or "document preparation."
- Payment: Don't sign a contract that requires payment when a buyer is delivered. If the deal falls through, you may still be on the hook for the commission. Stipulate that payment will be made out of closing proceeds.
- Conflict resolution: All listing contracts should specify how conflicts will be resolved. Binding arbitration is quicker and less expensive than going to court. However, you also give up the right to hire a lawyer and pursue a civil suit.
The time to discuss these issues, of course, is before you sign — and make sure you get everything in writing. (No verbal agreements allowed!) Selling a home is stressful enough without the added hassle of resolving conflicts when things don't work out.
Also, be aware of the types of listing agreements: Under an exclusive agency agreement between a home seller and an agent, sellers retain the right to sell their property themselves without paying a commission if the agent is not involved in the sale. The more common listing agreement is exclusive right to sell, which provides that the listing broker is guaranteed a commission.
The Downside of DiscountsIt may sound counter-intuitive, but discounts don't always provide the better deal. For example, is the agent you intend to work with able to provide discounts by being more efficient or by giving buyer's agents a lower split? If it's the latter, some buyer's agents may decide it's not worth their time to show your home, which means potential buyers won't see it, either.
Think of it this way: You're a buyer's agent with a couple of $300,000 homes you think your client might like. You'll earn a 3.5 percent commission ($10,500) on one, 2 percent ($6,000) on the other. Which one would you show first?
Tiered PricingAnother idea for negotiating a contract might be a pay-for-performance approach, sometimes called tiered pricing. It can work various ways, but generally the agreement is for an hourly rate to be paid the seller's agent; an agreement on a flat fee to be paid a buyer's agent (e.g., 2 percent); and some incentive. For example, for selling the house above the listing price, the agent could get 5 percent of that bonus amount. The idea is that the agent will be less inclined to accept just any offer, and more inclined to get you more for your house.
This might work best for high-priced homes, but the moral is that it pays to be creative.
Don't Count on a DiscountGiven the ongoing changes in the real estate industry, it's unlikely that discounted commissions will ever go away entirely. They may, however, get harder to come by.
In early 2006, for example, the nation's red-hot housing market began showing signs of cooling. When that happens, individual homes typically take longer to sell. That not only raises agent expenses (more advertising, more showings, etc.), but also increases the need for savvier marketing. A successful agent (i.e., one who can deliver the goods in tough times), may be disinclined to discount.
*Dr. Charles Karrass is an expert in effective negotiating and runs negotiating seminars.
By Diane Tuman
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