3 Ways To Save On Real Estate Commission

#1: Sell it yourself

One radical option is to go it alone. By omitting the agent — and the commission fees — and going for the grassroots For-Sale-By-Owner (FSBO) approach you can save a bundle of money. But it’s not entirely free.

For instance, the cost of posting a listing on websites such as ForSaleByOwner.ca and PropertyGuys.com ranges from free to just over $2,000. Like the MLS, these dedicated Internet portals allow homeowners to include descriptions, photos, price and contact information.

Then there are the fees for neighbourhood signs, online advertisements, flyers and flyer delivery. You’ll also have to consider how much your time is worth, as you take on the role of open house host, neighbourhood canvasser and real estate marketer.

But be forewarned: only about 7% of buyers have embraced the FSBO option, which means a significantly smaller pool of potential buyers for your property.

#2: Negotiate a lower fee

Shaving just 1% off the average 6% real estate agent commission could save you $4,000 on the sale of a $400,000 home.

Unfortunately, not all realtors are receptive to the idea of dropping their rates. In 2008, Consumer Reports released a study that found that only 46% of U.S. sellers attempted to negotiate a lower commission. Of those who did, just 71% succeeded.

A good strategy is to ask for a slightly lower rate or to promise a double-ended commission. A Toronto study found that lowering commissions from 2.5% to 2% had a negligible impact on both sale price and the time-on-the-market — but this fee reduction could save the seller $10,000 or more in commission fees.

The double-ended request means you ask for an overall lower commission, but commit to working with the same realtor for selling your current home and buying your new home. Because the agent is now getting two ends of a commission, they may be more receptive to lower the overall fee they charge.  

#3: Use a full service discount broker

When you go the full service discount broker route, you get all the exact same services as all the other realtors, you just save more with their low commission. As some veteran Realtors explain, this service is for savy sellers who are looking for the best possible value.  

A variant to the full service discount broker, is where you pay a larger commission and higher fees for a high priced realtor. These fees and commissions can start at $2,000 (depending on the sale price)and go up.

Keep in mind that whether you go with a full service discount broker, a high priced realtor or choose a FSBO listing, you will probably still need to pay the buy-side Realtor a commission. Why? Because these agents won’t drive business to your listing if there’s no money to be earned. While you may consider this unethical, you have to consider that most Realtors will work weeks and months with no payment, but with the expectation of a payout at the end of a transaction.

Should you Negotiate Your Seller Agent’s Commission and Services?

Want to pay less or get more from your Realtor? The key is to understand what’s on offer

There is a common misconception that there is a standard percentage when it comes to Realtor commissions.  Generally the rule of thumb is 5%. In truth, there is no set price.  That would be price-fixing, which is illegal in most industries.

Instead, most jurisdictions in Canada follow precedence when it comes to paying Realtor commission rates. For instance, in most parts of Ontario and the Prairies, the average prevailing fee paid to agents is about 5% to 6% of the home’s final sale price. In Ontario., most Realtors charge 6% to 7% on the first $100,000 and 1% to 2% on the balance of the purchase price.

However, Realtor commissions aren’t set in stone. If a Realtor sells a vacant lot, the commission is usually higher — sometimes as high as 10% to 20% — because selling land takes longer and involves more marketing dollars.  In Durham Region One Of the Top Selling Discount Broker Can Sell Your Home For 1%(plus fee to the selling broker).

Who Pays the Commission and Where Does it Go?

Sorry, home sellers: You’re on the hook for paying all Realtor fees.

Typically, 1/2 the fee you pay will go to your listing agent — the Realtor you worked with to sell your home — and half will go to the buyer’s agent.

To appreciate the impact of this transactional cost, let’s assume that you sell your home for $450,000 and that your listing agent and the buyer’s agent will each earn 2.5% of the sale price. In this transaction, the seller would be responsible for paying $22,500 in Realtor fees. Half of this money will go to the buyer’s brokerage (where they will keep a percentage before giving the agent their share of the money); half the money will go to your agent’s brokerage (where they will keep a portion, before paying out the listing agent’s commission).

From these fees, most Realtors usually have to pay for their own advertising and marketing, insurance and business license, in addition to all the other expenses associated with running a small business.

An agent only gets paid a commission when the title on a home is transferred to the new owner. That means an agent may work with a seller for many months — and through many offers — before getting paid.

Are commissions negotiable?

Absolutely! Commissions are always negotiable but that doesn’t mean all Realtors will drop their fees to get your business.

These days there are brokerages and agents that charge fees that cater to every income level (and snack bracket). This means it’s important to shop around and ask questions. Particularly given how much you can save with just a small reduction in fees.  

For instance, shaving just 1% off the average 6% real estate agent commission could save you $4,000 on the sale of a $400,000 home.  If you're one of those people who doens't want to haggle but still wants a brand name at a discounted price click here.

Unfortunately, not all realtors are receptive to the idea of dropping their rates. A Consumer Reports study, released in 2008, found that only 46% of U.S. sellers attempted to negotiate a lower commission. Of those who did, 71% succeeded in lowering their agent’s commission costs.

Here in Canada, Realtors may be even less receptive to negotiating. As one reader, who lives in Durham Region, recently found out. After calling a dozen agents, and asking them to lower the commission rate charged, this home seller received five “flat out refusals.” The remaining responses varied from hard “no’s” to a discussion on why a good Realtor won’t bother discounting their rates.

The Key: Understand How Agents Work

Of course, when selling your home the idea of paying only 1% or even 2% in commission versus 5% to 6% or even 7% can be very, very appealing. Who doesn’t want to save as much as $33,000 on the sale of a home listed for $550,000? But before deciding on a discount brokerage, consider how the industry and agents work.

Big Name Equals Big Costs

Agents who work for big-name firms charge more in commissions because they pay more in fees to their brokerage offices — as much as $2,000 each month (and this doesn’t include expenses associated with operating a small business, board fees or professional insurance costs).

So why would an agent stick with these large firms with high fees? Because these firms spend a lot of money on marketing and advertising. Pick up the newspaper or go online and you’re sure to find a study or statistics recently released by a big-name brokerage. One reason why newspapers, magazines and bloggers report these stories is because these large firms spend millions each year on press releases, marketing and building relationships with media and influencers. (Long before influencer marketing was a thing, real estate brokerages new how important it was to get influencers talking about their brand.)

For most agents working with traditional brokerage models, the biggest hurdle is getting clients. Loads of time, money and strategy is focused and getting client leads. Some agents don’t mind paying high fees if it means their brokerage spends time and money marketing and generating awareness and leads.  Generally though it means higher prices for the seller.  

Still, this doesn’t totally explain why agents don’t jump ship and go to a firm that charges little to no fees (allowing the agent to pass on those savings to their clients). Perhaps the real answer boils down to quality versus quantity.  Until now!  Here is a brand name top selling broker with a 1% listing fee serving the Durham Region.