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Homeowners Have Real Estate Agents Over a Barrel

Limited housing stock has emboldened more Americans to demand lower commissions.

You just sold your home for $400,000. Good going, nice job, congratulations. Kudos are also due to the real estate agents who helped you close the deal. If you live in a part of the country where the standard commission is 6 percent, you probably just paid them $24,000. Or maybe not.

Real estate commissions are set by custom, not written in stone, and a new survey suggests Americans are haggling. Sixty percent of people who sold a home in the U.S. over the last year got a discount from their agent, with average savings of 41 percent off the standard commission, according to real estate brokerage Redfin. These aren’t trivial amounts: If you’re selling a $400,000 house and manage to cut your agent’s commission to 5 percent, you just saved $4,000. If you got the 41 percent discount that Redfin’s survey identified as the average, you saved just under $10,000.

Why are sellers cutting better deals? One explanation is that low inventory in some markets means a lot of agents are fighting over a small number of listings. In May, the number of U.S. homes listed for sale was down 4.2 percent from the previous year, according to data published by Realtor.com. The shortage of homes for sale has been the dominant theme in such markets as San Francisco and Dallas, driving up prices and forcing buyers to make snap decisions and waive contingencies. Lately, those conditions have been migrating to smaller, less likely cities, including Omaha, Neb., and Buffalo, N.Y. Not only do tight markets create more competition between agents, they also tend to increase sales prices and decrease the amount of time it takes to sell a home—two factors that are probably making it easier for an agent to accept a lower fee.

An additional theory, advanced by Redfin in a blog post accompanying the survey results, is that agents agreeing to accept discounted fees are responding to pressure from real estate tech startups. That cohort includes Redfin, a Seattle-based brokerage that charges sellers 1.5 percent to list a home, so it might pay to consider the source. Still, its plausible that online real estate companies are driving down commissions by charging lower fees, helping sellers list homes without agents, or forcing traditional agents to compete for new leads. 

“It used to be that I would go to a listing appointment and the sellers were already completely sold on hiring me,” said Elizabeth Weintraub, who leads a team of agents at Lyon Real Estate in Sacramento, Calif. “Now it seems like I’m having to spend most of the appointment explaining why I’m worth the commission.”

Weintraub’s argument is that 40 years in the business have given her a keen sense of when a buyer is likely to be turned down for a loan, or when there’s room to coax a prospect into making a higher offer. Others have argued that a seller who insists on paying a lower commission runs the risk of limiting the number of would-be buyers who look at the home. That’s because agents representing buyers are usually paid out of the sellers’ commission, and reduced fees have a way of trickling down. Another favorite thesis is that an agent who can’t defend his or her commission is likely to fold when negotiating the actual sale—although if you believe that, you should double your agents’ commission on the theory that the service you get in return will be twice as good.

A more plausible argument is that not all sellers look the same to real estate agents. Homes that sell for higher amounts generate larger commissions—and probably create some additional wiggle room for agents to cut fees. Likewise, a seller who plans to use the same agent to sell their old home and buy a new one probably has extra leverage in bargaining.

The Redfin survey indicates that even sellers with more modest properties and no plans to buy a new home should inquire about reducing their fee. As any good negotiator would tell you, it doesn’t hurt to ask.  

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