Real estate commission rates have always been negotiable and will continue to be negotiable even after the terms of the NAR settlement are enacted in mid-August 2024. But how do you determine what a competitive real estate commission is in your area and niche?
What follows is a discussion on how real estate commission rates are set. We’ll discuss factors influencing rates and strategies for setting them for beginning and experienced real estate agents.
Understanding Commission Rates
Commission rates for real estate agents have always been negotiable. However, they have hovered around 5-6% of the transaction amount for decades. Typically, the seller pays the commission, which is divided among the seller’s agent, the buyer’s agent, and their respective brokerages.
There are also brokerages that charge a flat fee for services and others that charge a tiered rate based on meeting specific criteria.
There’s speculation that commission rates for buyer’s agents may change in mid-August. However, how the commission may change remains to be seen.
Related: How Much Can You Make as a Real Estate Agent?
The Importance of Competitive Commission Rates in the Real Estate Industry
Setting a rate for your real estate services is similar to setting prices in other industries. The market may fluctuate, and adjusting commission rates with the market can help you remain competitive and maintain a client base.
Setting competitive commission rates can be a strategic tool for real estate agents. Having a competitive starting commission rate can attract potential clients. Of course, lower commission rates might reduce the profit margin per transaction. However, at the same time, lower rates can mean increased volume.
Of course, another benefit of being flexible with commission rates is that your flexibility may increase client satisfaction and trust. Negotiating with clients can show you care and that you are willing to work for them to meet their needs.
Analyzing the Current Real Estate Market
Like any industry, the current real estate market (and the broader economy) can help set commission rates. National, state, and local factors can all affect a real estate agent’s income. For example, interest rates influence the national real estate market. At the same time, a new employer in your community can also increase the need for real estate agents in your area.
Factors Influencing Commission Rates
Here are some additional factors that may influence the commission rates of real estate agents.
1. Market conditions
In a seller’s market, where demand exceeds supply, homes sell quickly, and prices are high. Agents may lower their commission rates because they can handle more transactions in less time.
Conversely, in a buyer’s market, where supply exceeds demand, agents might maintain higher rates to compensate for the increased effort and longer time required to sell properties.
2. Property value and type
Agents might accept a lower percentage in areas with high property values because the dollar amount they earn per transaction is still substantial.
Real estate agents in the commercial sector may also work for a lower percentage or tiered rate.
3. Brokerage policies
While real estate agents are like small business owners, they must work under a broker. The brokerage may set guidelines on real estate commissions. After all, they receive a portion of those commissions, so they have a stake in the game.
4. Agent experience and reputation
Finally, experienced agents with stellar reputations for providing quality service can ask for higher commission rates.
Strategies for Setting Competitive Commission Rates
Setting competitive commission rates involves a strategic balance between attracting clients, offering value, and maintaining profitability. Here are some strategies real estate agents use to find a competitive commission rate.
1. Research and benchmarking
Conduct thorough research on local market conditions and what competitors are charging. Understanding the standard commission rate in your local area and how other agents differentiate their pricing can provide a benchmark and help identify opportunities for competitive positioning.
2. Value proposition
During negotiations with clients, communicate the value you bring to the table. Justify your rates by highlighting your expertise, track record, and any unique services you offer.
3. Flexible commission models
While you may prefer working on a percentage commission, some brokerages allow agents to offer other commission models, such as flat fee options.
4. Negotiation tactics
Being open to negotiations with potential clients may yield more jobs and higher client satisfaction rates. Of course, like in every type of negotiation, you may also have to walk away from jobs.
While there are a variety of strategies for setting competitive commission rates, we would like to highlight one. Skilled real estate agents with excellent track records can charge more. Become a highly skilled agent by enrolling in pre-licensing, continuing education, and broker licensing courses with Colibri Real Estate School. Colibri Real Estate School (formerly Real Estate Express) has helped hundreds of thousands of real estate agents earn their licenses. We can help you achieve your career goals and become the go-to real estate agent in your community.
Key Takeaways
- Commission rates in real estate are negotiable and typically range between 5-6%. Agents may adjust these rates based on market conditions, property value, and experience to stay competitive.
- Factors such as interest rates, local economic developments, and market type (buyer’s or seller’s) influence the optimal commission rate.
- Agents should conduct thorough research on local market conditions and competitor pricing to set competitive commission rates.
