After narrowing your hunt for a listing agent, you'll be faced with the next task of the home seller: negotiating a listing contract. These contract negotiations generally fall into two categories: money—in this case, your agent's commission—and contract terms. Be prepared to compromise: In a successful negotiation, all parties come away believing that they've struck a good deal.
Negotiating Fees
A typical fee is 6% of your selling price but can vary from 4% to 10% depending on area, market, and even an agent's track record. Brokers follow local standards when setting their percentage, but they are not legally allowed to set fees. So the good news is, yes, there is room for negotiation. Below are some examples of strong negotiating points.
An agent may accept a reduced commission if:
- You're in a seller's market (there are more buyers than houses available), your house is in mint condition, and your location is to die for. Don't even think about not negotiating. Ask for a 1% fee reduction.
- Your agent has a buyer before you list. Not only does (s)he save splitting the commission with another broker, but time and money are saved on showings, open houses and promotions.
- Your house sells within the first week of being listed, sparing your agent time and money.
- He or she represents both you and the buyer (acting as a "dual agent") or represents only you but produces the buyer. In these cases, the commission isn't shared with a buyer's agent (who normally receives at least one-half of the selling agent's fee). In a dual-agent scenario, try negotiating for a 2% lower fee; if your agent produces the buyer, ask for a 1% reduction.
- The buyer is introduced by a firm colleague, in which case your agent will be spared the firm's portion of the commission.
- You perform some of the services that would normally be done by an agent, such as arranging and paying for promotions.
- You know of a likely buyer before you list. Include the name(s) of the potential buyer in the contract, stipulating that a commission won't be due if that buyer purchases your home. Your agent may also try to find another buyer with a higher bid and then discount their commission so your net profit is greater, which is good for both of you.
- You're close to a sale, but the buyer won't—or can't—meet you halfway. Real estate writer Ilyce Glink, in her book 100 Questions Every Home Seller Should Ask, suggests asking your listing agent and the buyer's agent if they'll offer some of their commission to seal the deal. Expect resistance, but it isn't futile.
Negotiating for higher fees
You may actually benefit from offering a higher commission fee or a bonus in some situations—for example, if you need to sell quickly or your home is in poor condition. If an agent has a stellar track record, tending to sell homes in days rather than weeks, it can be a worthy investment.
If you're selling in a "buyer's market," where there are more houses available than buyers, consider offering a bonus on top of your agent's commission. Their loyalty could affect whose house sells—yours or your neighbor's.
Negotiating Terms
Paying your agent at closing. If your agent performs as stipulated in the contract and brings you a buyer who is "ready, willing and able" to close at full price and with your terms, you may owe the agent's fee even if you decline the buyer's offer. To avoid paying two commissions—the second being when you do accept an offer—ask to strike this clause from the contract. Amend the contract to state that the broker will be paid by the proceeds of the sale upon closing. This protects you in case the buyer bails for any reason.
Selling to a "return customer." If your house doesn't sell during the period covered by your listing contract, but you later sell to a buyer who was found by your agent, you may still owe the agent's full commission. This post-expiration period is called the "protection period," often described as 60 to 180 days after the contract expires. Request that the protection period be 90 days or less.
Choosing a new firm or agent. If your original contract has expired, you may end up choosing a new agent or firm. If you then sell to a buyer who was shown your home by your first agent, you could end up paying a commission to both agents unless you add a protective clause to your contract.
Canceling your contract. Request the right to cancel your contract. You can make this request more palatable by offering, say, a two-week written notice to terminate if you do so for any reason. If your agent really messes up (i.e. lies, steals, cheats), you should be allowed to terminate immediately (it's called "terminating for cause"). In the latter case, you won't be liable for the commission, but you might still owe the agent for costs and possibly a penalty fee.
Negotiating Tips
Start at the beginning. During your first telephone contact, ask agent candidates if their full fee is negotiable if justified by special circumstances.
Put all agreements in writing. Include every change or addition you and your agent agree upon in your contract. Enough said.
Ask questions before you sign. Ask your agent to rephrase any language in the contract you find confusing. If the agent's explanation is clearer than the contract phrasing, strike the paragraph and rewrite it in your agent's words. If you still feel like you're in over your head, consult a real estate attorney before signing.
Be confident. Etiquette has a place at every negotiating table, but there's no need to be timid. Your job is to get the best deal you can. Your agent may be resistant, but rest assured that he or she is familiar with the process. This isn't personal, it's business; and it can be fun.
Don't deal yourself out of a sale. Bargain, but within reason. A good agent will be working hard for you. If he or she ends up having to choose among house showings, you don't want to be neglected in favor of a higher-paying client.