As a result of recent industry events, more buyers and sellers may ask you about negotiating commission rates. Of course, if you are an experienced real estate agent, you will have had this discussion before since commission rates have always been negotiable. However, the frequency of these negotiations may increase since the topic of real estate commissions has been covered in the news.
You may feel awkward discussing commissions with your clients. However, everyone involved in a real estate transaction must understand how the agents will be paid. Here are some tips for beginning and experienced real estate agents negotiating commission rates.
Related: Key Changes Mandated by the NAR Settlement
How Real Estate Agent Commissions Work
Real estate commissions are typically a percentage of a property’s sale price and are paid by the seller at closing. However, some brokerages work on a flat fee structure.
Related: Flat Fee vs. Percentage-Based Commission Models in Real Estate
The marketplace will determine how real estate agent commissions will work post-settlement. The percentage-based commission structure may continue to be the norm. However, one key difference is that REALTORS® and their buyer clients must have a written buyer agreement before the client is even allowed to tour a home (in person or live virtually). This agreement will include the compensation the buyer’s agent will receive for services.
Can You Negotiate a Real Estate Agent’s Commission?
Yes! Real estate agent commissions have always been negotiable (and will continue to be so.) To avoid misunderstandings later, the commission rate must be documented in the listing agreement (for sellers) and buyers agreement (for buyers). Buyers and sellers may negotiate for a specific percentage, flat fee, or tiered commission structure (where the agent earns a higher rate if the property sells above a specific price).
How to Deal with Commission Negotiations as a Real Estate Agent
Negotiating commission rates is a necessary part of a real estate agent’s job. Preparing for these negotiations is critical. Here are some tips on how to deal with the commission negotiation process as an agent.
1. Understand your value proposition
As a licensed real estate agent, you have a lot of knowledge about state-specific laws and regulations related to real estate transactions. In addition, you understand the local real estate market, which is critical as both a buyer’s and seller’s agent. Understand and clearly articulate your value as you negotiate with potential clients.
2. Know the market rates
In any industry, keeping an eye on the competition is essential. What are other brokerages in your area charging for comparable services?
If a potential seller is considering working with a discount broker, show data on how properties marketed with full-service agents tend to sell for higher prices and faster than those with discount brokers. If a buyer is considering working with a low-fee agent, demonstrate how your expert negotiation skills and market knowledge make you the better choice.
3. Communicate clearly
You may not look forward to commission conversations, but they are critical to your business. You must learn how to stay calm and communicate clearly during this conversation. Create a script and practice what to say. Learn how to address concerns and be ready to explain why your commission rate is fair and competitive.
4. Flexible structures
Some real estate agents offer flexible fee structures, such as flat rates, hourly rates, or tired commissions. Talk with your brokerage’s leadership team to see if offering flexible compensation structures might be good for your business.
5. Build trust and rapport
Clients may be willing to pay more for services if they like and trust the real estate agent. Stress your role as a dedicated advocate for your client’s interests. Build trust by being transparent, providing honest advice, and treating people with respect.
6. Offer guarantees
Clients may be more inclined to negotiate on commissions if you offer a guarantee. For example, you might offer sellers a commitment to specific performance metrics, such as selling the property within a certain number of days or obtaining a specific price. For buyers, you may offer a guarantee that if they aren’t satisfied with their purchase within a specific period, you will help them sell the property and waive your listing commission.
7. Educate clients
Some of your clients may need help understanding the work that goes into a typical real estate transaction. Show your worth by educating your clients on your part of the process. Explain the legal and regulatory procedures required in your state. Finally, teach them how real estate agents in your area are typically compensated.
Related: Educating Clients on the Value of Real Estate Agent Commission
8. Be prepared to walk away
If negotiations have stalled, you may need to walk away from the job. This may be difficult to do, especially when listings are scarce. However, like any skilled professional, you deserve compensation for your work. If the client isn’t willing to pay the going rate for services, allow them to find someone to work for less.
9. Stay professional
Professional conduct can positively influence the outcome of your negotiations with a potential client. Acting professionally shows you are serious, knowledgeable, and committed to your career. Even if you must walk away from the listing or buyer agreement, do so with class. Unprofessional conduct will harm your image and future opportunities.
Does the idea of negotiating commission rates with clients cause you concern? We understand that working on commission may be new to you. However, negotiation skills can be learned. Your brokerage should offer support, but you can also learn best practices from your real estate school.
Colibri Real Estate School will teach you everything you need to know to succeed in the real estate industry. Our state-specific real estate licensing and continuing education courses will prepare you to negotiate commission rates and serve your clients.
Key Takeaways
- Clearly articulate your value to clients, highlighting your knowledge of state-specific laws, local market expertise, and negotiation skills to justify your commission rates.
- Understand what competitors charge and use data to show the benefits of full-service agents over discount brokers, emphasizing how it can lead to higher sales and quicker transactions.
- Prepare and practice a script for commission discussions to address client concerns confidently and explain why your rates are fair and competitive.
- To accommodate different client preferences and needs, consider offering various fee structures, such as flat rates or tiered commissions.
