what is a reasonable RE commission discount and how to approach

Question

I keep reading these posts where people recommend that one requests RE agents to offer a commission discount..

How much would you recommend would be reasonable without insulting an agent? From a newbie's perspective, wouldn't agents be reluctant to do so specially for a newbie who may need more handholding from the agent?

For example a newbie may need to look at numerous properties and do walkthrough (before being really ready to pull the trigger) while learning to analyze the numbers in order to know whether or not there is a deal.

What would you recommend to be appropriate and how can this be approached?

Thanks for your help!

Bart H. · Answer

Maybe we have left money on the table.  But generally I have been of the belief that working with a realtor who specializes in investments that their commission is well worth the money.

Our real estate agent has given us recommendations on when to pass on properties and when they think we are onto a good deal.

Maybe our business model is different than most, but I dont want to be transnational with my suppliers, I really want to focus on being collaborative.  Think about it this way.  Yeah, maybe you can pay 4% instead of 6% on a 200K property...call it $4K in savings.

What happens the next time that agent comes across a deal that is $50K under market?  do you think they go to you?  or someone who is paying a larger commission?

Our last deal was just that, our agent called us with a property that fell out of contract right before Thanksgiving.  She was able to help us get it about $35-40K less than the sellers paid for it earlier in the year.  If we were beating her up over the commission, my guess is she might have to one of her other investors.

I have also had our agent eat costs that might otherwise have gone to us.  My agent in the past has hired a traveling notary to save a deal that was at the 11th hour.  Another time she paid for a contractor to create an access door to a condo crawl space so that a closing could happen.

Several times our agent has made us thousands of dollars by negotiating higher (or lower) sales prices paying for the full cost of their commission.

I'll take the deal and pay a little more in commission.  Maybe if we start doing large volumes we might work on amending terms with our investor, but as a fairly new investor, I want to be the client who they are first to bring deals..

Chris Mason · Answer

Hi @Patrick Boutin,

I suspect that you will get a lot farther keeping your agent in your corner and fighting for you than you will by beating your agent up.

Take a look at these two pictures below, tell me if you think this is likely to happen when your agent is only putting 60% effort in because you gave them a 40% pay cut:

Initial purchase contract....

Addendum a few weeks later (actually just came in yesterday)....

In the alternative world where you give your agent a pay cut, to $8k instead of $13k (2.5% is not unusual at this price point), did you really save money? No, because you gave away $9k to "save" $5k! I can certainly find more extreme examples of buyers agents working their tails off making a huge difference, but I wanted a current example.

Dollar-cost-averaged over multiple transactions, I believe there is no question that good, honest, and competent buyers agents earn their 2.5% to 3%. This is especially true when the same agent represents you on the next transaction, and the next, which is not uncommon for REI.

I do not personally believe that to be true of listing agents when selling a house, however.

Matt Lefebvre · Answer

Depends on how valuable the agent is.  The question shouldn't be "How much of a discount can I get?" but rather be "Am I getting value from x% commission"?

Account Closed · Answer

@Patrick Boutin

It totally depends on the amount of work being done.  Are you expecting them to find the deal for you?  How long are wanting for a escrow period?  Are you going to close every deal they have to deal with?

In Texas, I know people that will do a deal for 1%.  Here are the conditions.

1)  $100,000 plus price.

2)  Buyers and seller find each other.  No MLS, no advertisement, no marketing at all.

3)  Short escrow.  No more than 30 days max.

The deals normally go like this.

Buyer calls agent says...  I want to buy this address, with this entity, for this price, with this closing date, and 10% earnest money, with the usual other terms.  The seller is expecting your call.  I can be there in two hours to sign the contract and drop off the earnest money check.

Peter Amour · Answer

i think you got some great advise , i would say its a bit crazy to say you should look at 100 house or properties , i would think 10-15 should be reasonable . maybe because i am from a small state ?

i think once you get a few under your belt,  i would think about your discount :) i think an agent will have his work cut out with you , haha , no offense :)

if you have a good age working for your best interest , its worth it .

Russell Brazil · Answer

Last time someone asked me to take a cut on a buy side transaction I told them they could choose to pay me my hourly consulting fee instead out of their pocket instead of the seller paying me my commission. I bill out at $350 an hour, including travel time to properties. They chose to go with the seller paid commission model, but I actually chose not to work with them since I didn't think they would actually close a deal.

Mark Creason · Answer

You get it.  I have had agents call me with great deals because I have been willing to pay the commission.  Too many REI guys just think of saving the commission.  They forget 100% of nothing is nothing.

Mark

Patrick Boutin · Answer

That's right @Joe Bertolino! I overlooked the fact that I was talking about the buy side and not the selling side yet. As you point out, the seller pays for this off of the sale proceeds. Since that's where I am it is pointless for me to look for a discount which will really come into play when I am ready to re-sell the property.

I also do understand that I get what I pay for. It's just a matter of trying to find ways of cutting costs wherever possible in order to make a deal work even when unexpected things do pop up.

Makes sense!

Dana Whicker · Answer

Your instinct is right. If an agent shows you multiple properties over a period time, and it's your first time working with them, they are going to expect full commission. If you ask for a discount they may not be too interested in busting their hump to get you that next deal.

If you work with an agent for a few deals, and you follow through with whatever you say you will do, the commission starts to get pretty flexible.

what is a reasonable RE commission discount and how to approach

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