The Real Deal New York

Ken Harney What Sellers Really Pay in Commission

October 15, 2007
By Ken Harney

What do American home sellers and buyers really pay to real estate agents in commissions? Though every market and region in the country has its own typically quoted set of norms – often 6 percent to 7 percent- most consumers never learn what commission rates actually get paid in their areas.

Commission rates are the single most sensitive subject in the real estate industry. Brokers or agents from competing firms can be charged with antitrust law violations for even whispering about rate structures among themselves. It’s the ultimate no-no topic for Realtors.

But there is hard data on what home buyers and sellers pay. There is a national average real estate commission rate. And there is data on average commission rates region by region. It’s just that nobody ever tells consumers what the numbers are.

Now you’re going to find out: Based on internal financial data supplied by nearly 900 of the largest real estate brokerage firms across the country, the average commission paid by consumers in connection with home sales last year in the United States was (drumroll): 5.06 percent.

The highest average commissions were in the Southeastern and Midwestern states – 5.38 percent. By far the lowest were paid in the mid-Atlantic states, 4.78 percent. New England consumers paid an average of 5.14 percent. West Coast, Hawaii and Alaska consumers paid an average 5 percent, and Southwest and Mountain region consumers paid 5.26 percent. The commission data comes from the realty industry’s only comprehensive annual survey, where firms voluntarily provide their internal financial data, cost structures, subsidiary income, commission income, sales agent compensation and other corporate data to an independent research firm, Littleton, Colo.-based REAL Trends Inc., co-founded by Steve Murray.

Murray’s annual study accepts only verified financial statements, and promises each contributing firm that its private financial reports never will be shared with anyone or published. Instead the data is used in aggregate form to analyze what’s happening in the realty brokerage industry overall, from giant nationwide companies with thousands of sales agents to modest-sized, locally focused real estate offices.

For several years, the survey has documented declining average commission rates, pushed by aggressive competition among realty firms, booming sellers’ markets in large swaths of the country, and the rapid spread of discount and limited-service realty listing firms, both online and offline.

Last year, however, average commission rates stabilized, according to Murray. Apparently some firms decided to exit the commission bidding wars with discounters, and to emphasize their far more extensive marketing services to clients, in exchange for slightly higher rates. Many traditional, full-service firms have never cut their rates much.

Though brokers generally are reluctant to discuss their pricing philosophies publicly, Washington, D.C.-based independent broker Donna Evers of Evers & Co. Real Estate Inc. recently agreed to share some insights on the record.

As a general guideline, she said, her agents quote 6 percent to prospective sellers when making listing presentations on resale houses. For renovated homes or new construction, the target rate is 5 percent.

But in some cases, when the company potentially has both “sides” of the transaction in hand – with an Evers & Co. agent already representing a ready and willing buyer for the house – the commission may well be lower than the target rate.

One of Evers’ top agents, who asked not to be identified, said “other subjective considerations” sometimes enter into the picture as well. For instance, if the prospective listing client was referred by a previous client or friend of the agent, the commission quote might be below the standard rate.

Also, most listing agents may respond to highly competitive situations, where contending firms drop their negotiated rates in a battle to land the listing.

The point here for sellers and buyers is that whatever you may think, commission rates are absolutely negotiable – and surprisingly variable-across the realty firm spectrum. Discount, limited-service listing firms may charge minimal commission rates or flat fees to get your house into the local multiple listing service (MLS).

But they’re also likely to perform fewer marketing functions for you, and leave certain advertising, purchaser appointments and open house responsibilities to you.

Full service firms probably will charge you more, but do more and spend more, to sell your property. In a sizzling seller’s market, you may not need all the heft of a traditional broker to sell successfully, and can get away with more limited marketing. Or you can simply negotiate for a lower commission rate from a full-service broker, given the likely ease of the sale. In a soft, slow-moving market, you may want the highest-power firm or agent-and maybe agree to the full asking commission rate – to get the sale closed quickly andécorrectly.

It’s all yours to negotiate.
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Ken Harney is a real estate columnist for the Washington Post.

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