Buyer Agent Commission 2.5% vs. 3.0%

[Jesse T.]

Does offering 2.5% reduce the number of agents who will show a buyer a house?

This is a home in the 600K range if that makes a difference in the Washington DC suburbs.

[Al Wilson]

Good grief, don't be cheap. Do you want to sell it or not?

[Radhika M.]

@Jesse T.

 Depends on what is the norm in your market.  In our market 2.5% is very common.

[James Wise]

Two companies place an ad to hire a handyman. Both jobs are identical.

Company A is paying $15/hour.

Company B is paying $20/hour.

Which company is going to get more applicants?

[Jeff Rabinowitz]

Depending on how urgent it is for you to sell, it may be wise to offer a couple grand extra to the buyer's agent. I am licensed and entitled to a commission when I buy but I have rarely taken it. I allow the seller's agent to keep both ends. My offers always get presented to the seller and I usually purchase the homes I want at the price I want to pay. Though I have never asked for it, I have had agents tell me they sat on higher offers than mine when I was purchasing foreclosures. (It is amazing to me that an agent would risk losing their license or jail time for $1K but I have sen it several times.)

[Justin Kilgore]

Originally posted by @James Wise:

Two companies place an ad to hire a handyman. Both jobs are identical.

Company A is paying $15/hour.

Company B is paying $20/hour.

Which company is going to get more applicants?

Great analogy!

@Jesse T.

Seller can also offer 3%, 1st 200k, 2% 2nd 200k, 1% balance. Common in my area, how about yours?

[Sam Erickson]

I haven't found it to make much of a difference especially if 2.5 isn't very uncommon. Most buyers these days do a lot of looking on their online either via sites like realtor.com or even through an mls portal their agent sets up for them, and they tell the agents what listings they want to look at.

What's their agent going to say, "I can't show you that house because I won't get paid as much"? That wouldn't fly to long with the buyers I have worked it.

[Wayne Brooks]

Well, it depends on if the buyer agents have commission agreements with their buyers addressing properties where the buyer agent is offered less than 3%.  If so the agreement says the buyer will make up the difference.  I'm certainly not spending a lot of time and and search with a buyer only to have them pick a home search property offering 1% to the buyer agent.  So yeah, in those cases the buyer is figuring in the extra commission in their offer.

[Lacey Russell]

It's actually illegal for an agent to reject showing a property because the commission rate is lower. Then again, there are some agents that might try to push clients trying to decide between two properties toward the one with the higher commission (also totally unethical). 

As an agent in Northern Virginia I can tell you that 2.5% is not uncommon. A lot of agents advertise that they will only charge the seller 5%, in which case half goes to the buyer and half to the seller. You can even find people who charge 4.5% where the seller agent gets 2% and the buyers 2.5% (however this is slightly less common). It all depends on what you and your agent agree to (although less than 2% is very uncommon).

Some agents that work regularly with investors may be willing to work for less commission because the maintenance of the listing and client is often not as much work, and investors offer the possibility of repeat business.

[Matthew B.]

I've never really noticed a difference in my area, and I've offered both 2.5% and 3%. Our median sales price is only around $150,000 though, so I imagine it's a little different at $600k. 

I used to offer 2.5% and use the extra 0.5% to entice the agent to get their buyer to increase their offer. It worked pretty well. You'd be surprised what an agent will do to get that extra 0.5%.

Lately, I've been just offering 3% from the start. I know a lot of big time investors who do it and the 0.5% doesn't make too much difference at our sales prices.

If I were you, I'd offer the 2.5% and see what happened. If you've got a great property the buyers are gonna demand to see it no matter what.

[Lisa Kohl]

Don't cut the buyer agent commission. There is a ton of work that goes into helping buyers and while it may be "illegal" for those agents to not to show your house- I can guarantee it won't be the first house they show. 

Like @Wayne Brooks mentioned- buyer rep agreements usually state that the buyer's agent is entitled to at least 3% of sales price of any property their buyer buys so the buyer would then have to come out of pocket for the remainder. Cutting a buyer agents commission is where you do not want to be cutting costs as they are the ones bringing in the traffic

If anything- you could negotiate a lower commission with the listing agent or go FSBO and offer a co-op for a buyers agent.

[Jon Deavers]

Great points @Lisa Kohl

From a listing agent perspective:

Service is like a product in that you get what you pay for. A great tip from the Real Estate Guys Radio podcast is to ask a Realtor, during your interview, to lower the amount of commission they charge. If they say sure, then don't hire them. If they'll walk away from their own money that easily what do you think they'll do with yours?

There's a lot of costs involved with properly listing and marketing a property so having the agent justify why they charge their rate by showing a track record and a comprehensive marketing plan is a more valuable use of your time than haggling over half a percent. When I market a property at resale I pay (out of my pocket, not charged in addition to my commission rate) for professional photography, a pro-level account on major real estate websites that increases your listing's visibility over the competition, targeted social media marketing, traditional media advertising if the property warrants it, all in addition to the traditional costs involved with a listing (broker splits, lockbox purchase, sign purchases, open house costs, etc).

[Sam Erickson]

@Jon Deavers you have some good points. However being an agent myself I often take into consideration repeat business. I would happily lower my commission by .5% and often do if I means I become the agent of choice for and investor who is selling multiple properties a year.

I don't believe by lowing my rate it tells an investor that I'm doing lower quality work or I don't value my time. I believe it shows them that I recognize their value to me and I want to work with them.

When a plumbing warehouse lowers the cost of a toilet for a plumber that's going to by 100 a year, has the quality of that toilet become less?