Real estate commission: How much can you save?

In the past, real estate sellers who didn’t pay the standard real estate commission were excluded from multiple listing services (MLS) and largely locked out of the market. To add insult to injury, do-it-yourself (DIY) buyers who made offers to self-sellers expected below-market pricing, wiping out much of the commission savings.

Today, the way real estate is marketed, bought and sold has changed and is still evolving. Now, there’s a range of options and services available for buyers and sellers alike.

Thanks, Internet

Online real estate sites have broken the stranglehold of full-service brokers. Emna Cherif, author of Analysis of the Internet Impact on the Real Estate Industry writes, “In the traditional real estate industry, the buyer is responsible for the real estate agent services charges and the purchase transaction cost. But today, buyers and sellers can use the Internet to list and search for houses, potentially bypassing traditional real-estate agents.”

While traditional real estate brokerages continue to offer the full-service experience (and charge the full-service commission), there are options available for those who want to pay less. In Europe, where the commission-based system has been nearly replaced by fee-for-service structures, selling costs average two to three percent of the property’s sales price.

Empowering Sellers: It’s Your Choice

When selling a home, you can choose from several levels of service. If your market is so hot that homebuyers are desperately running door to door and begging to buy (Silicon Valley, for instance), you can probably stick a sign in your front yard and start packing. However, in a buyer’s market where the supply of homes exceeds demand, you may need all the help you can find.

Then, there’s the middle ground, including the negotiated commission, the flat rate, the pocket listing and the fee-for-service or hybrid brokerage.

Sellers with homes priced over $400,000 or those in markets with few listings and hungry agents may be able to negotiate lower commissions. Another strategy to receive a discount is to promise the same agent you’ll use them again to buy your next property. However, don’t be surprised if old-school agents balk. Of agents surveyed by Inman, 55 percent said they were philosophically opposed to commission discounts. One respondent stated, “There is no reason to discount our services. It sends a message to the consumer that we are overpaid.”

Sellers who disagree may choose a flat-fee brokerage. These offices charge a flat fee for a service or a bundle of services not based on the home’s selling price, which can translate to big savings for homeowners with high-end property.

Traditional and modern agencies also offer pocket listings. Pocket listings aren’t listed in the MLS or publicly advertised; instead, the agent finds the buyer by privately marketing the home. Sellers who want to preserve their privacy (celebrities, for instance) have used this method for decades, and today’s sellers also utilize it to save on commissions.

Hybrid Brokerages Push Commissions Lower

Old-school real estate brokerages operate like cable television; you may have to purchase a premium package containing many channels just to get access to the few channels you actually want. Full-service brokerages charge for premium services, including advertising, open houses, lockboxes, document preparation and more, but maybe all you want is access to the local MLS.

This pay model is changing, both in television programming and real estate sales. In 1992, the average real estate commission in the U.S. was 6.04 percent. In 2013, it was 5.38 percent, and in 2014, it dropped to 5.18 percent, due to the emergence of hybrid real estate brokerages.

Hybrid brokerages provide an alternative to the traditional broker commission and service model, with offerings like discounted listing fees, MLS access, buyer rebates, innovative technology, consulting services and salaried agents. You only pay for the services you want. Hybrid, fee-for-service, or customized brokerages, like Owners.com, offer maximum flexibility and commission savings.

How Much Can You Save?

According to the U.S. Department of Justice, sellers who use fee-for-service brokerages can pocket serious savings: “Traditional brokers face increasing competition from fee-for-service brokers who charge only for those services the consumer actually buys. Consumers with the option of choosing a fee-for-service broker can save thousands of dollars by purchasing only those services they need.”

Unless you have an aversion to saving money, consider a lower cost option the next time you want to sell a home.