How to Pay Your Real Estate Agent

If you ask, you’ll probably be told you have to pay your agent some percentage of the sales price:  5%, 6%, 7%.  You’ll get that news as if it is law, set by some regulatory agency or trade union, when in truth:  real estate commissions are completely negotiable between the consumer and the office broker.  You can pay whatever you and the broker agree upon.  So what should you pay?  Let’s get to that answer by doing a little ground work first.

In the ordinary real estate world, when you agree to pay that percentage based commission (remember?  5%, 6%, 7%, whatever), you’re actually agreeing to pay not one, but four commissions.  It’s generally accepted in the ordinary real estate world that most sales will involve two brokers, one representing the seller in the transaction, and another one who comes in with the buyer.  This is so common that ordinary brokers plan for it:  they charge you a lofty lump sum percentage so that there is enough commission to pay that outside broker in the event that’s how the sale is made.  Typically, commissions are shared equally between the Seller’s broker and the Buyer’s broker . . . so that’s two commissions right there.

But we’re talking about Brokers, here.  You’ve probably been hearing from Agents, not Brokers, right?  An Agent is the Broker’s representative in the field.  He or she works for the Broker, follows the Broker’s instructions, is supervised by the Broker.  It’s rare (in the ordinary real estate world) that the consumer ever meets the Broker.  He or she is almost always dealing with an Agent who represents the Broker.  So we now have to plan for an Agent on the side representing the Seller and one on the side representing the Buyer:  two more commissions.  And 2 + 2 = 4.

Ordinary Brokers bundle this whole mess up into one big lump: their real estate sales commission, and when you agree to list your home with an ordinary Broker, you are agreeing to pay all four commissions whether there is an outside Broker and Agent involved or not.

That’s not as awful as it sounds.  Ordinary Agents and Brokers today have been conditioned to ‘throw a sign in the yard, put it in the MLS and wait for someone else to sell it.’   As a result, most real estate transactions usually do involve four separate sales entities that need to be paid.  But 15% – 25% of transactions don’t.  And ordinary real estate usually makes no special allowance for these other kinds of transactions.  What are they?

  • A Buyer could see the for sale sign or find your home in some other piece of marketing, call the listing office and ask to see it and eventually, buy it.  No outside Agent involved, no outside Broker involved.  But you’ll be paying those two extra commissions anyway, because that’s what you agreed to at the time of listing.   
  • A neighbor who saw the sign go up excitedly tells you about her brother who has wanted to live in the neighborhood for ages.  You invite the brother over, he loves the house and buys it.  No outside Agent, no outside Broker . . . but you still pay full fare.
  • You could go to the office and meet the new guy transferring in from out of town and, coincidentally, looking for a home just like yours!  You invite his family over and, of course, they buy the house.  No outside Agent or Broker, in fact YOU found the buyer . . . but what will you pay?  Full fare.  Its’ just the way things are. 

It doesn’t have to be that way.

When you interview your agent (remember:  you’re going to negotiate your commission . . . because you can),  insist that they un-bundle the commission.  Agree to pay the listing Broker no matter what:  he or she will have real expenses in marketing and will represent you to close of escrow.  And if you’re talking with an ordinary Broker, you ‘ll probably also have to agree to compensate his or her Agent as well.  After all, that’s who you’ll be dealing with (unless you are talking with an extraordinary Broker who will eliminate the middle-man and represent you himself).

Then, agree to pay the other two parts of the commission only if an outside Broker and Agent are involved.  Allow for the possibility that you may find the buyer yourself.  Allow for the possibility that an outside Broker/Agent working the MLS will not come in with a buyer.  In fact, if you are in one of the hot markets where inventory is at a premium today, maybe you should instruct your agent NOT to put you in the MLS for a few weeks, NOT to offer to pay an outside Broker/Agent for awhile, to give the market time to sell it without having to pay that extra commission.

I know:  this is sounding like a very complex negotiation.  How are you going to pull it off without shooting yourself in the foot?  I don’t think you’ll meet with much cooperation from your ordinary Agent.  You’re proposing taking a big bite out of the industry’s cash flow!

But you know what?  You don’t have to navigate this negotiation at all.  Help-U-Sell has been working that way for 37+ years.  We let you choose whether  or not you even want to offer you home for sale through outside Brokers.  We let you choose whether or not you want to participate in the marketing, whether or not you want to try to find your own buyer.  And when the sale is made and closed, you will pay based not on some arbitrary percentage you agreed to at the time of listing, but on how the home actually sells.  If no outside Broker is involved, you won’t pay one.  If you find your own buyer, you’ll pay even less.

Ready to start making sense out of your real estate transaction?  Go HERE to find a Help-U-Sell office near you.