Negotiation Know-How: 36% of Homebuyers and Sellers Unaware They Can Negotiate Real Estate Agent Fees - Here's Your Guide to Successfully Navigate the Process

When buying or selling a home, the commissions paid to your real estate agent can significantly impact the final sale price. However, many people are unaware that these terms are negotiable.

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According to a recent report by LendingTree, nearly a third (31%) of homebuyers and sellers have negotiated commissionsa with their agents, and 64% of them successfully reduced the fees. The report surveyed 2,034 U.S. adults in mid-January.

Surprisingly, about 36% of homebuyers and sellers were unaware that they could negotiate a real estate agent's commission.

That makes sense. When people are budgeting for a new home, they tend to focus on major expenses like the down payment and mortgage, according to Jacob Channel, a senior economist at LendingTree.

"Real estate commission fees are one of the less glamorous or less discussed parts of the homebuying process," said Channel. "Thoughts like how much a real estate agent is going to get paid or who pays the real estate agent probably aren't at the forefront of your mind."

How real estate agent commissions work

In 2023, the average real estate commission was 5.37%, according to LendingTree. Typically ranging from 5% to 6%, these fees can amount to thousands of dollars. The earnings are typically divided equally between the buyer and seller agents involved, with the seller usually covering these costs at the closing.

By the end of 2023, the median home sale price was $417,700, as reported by the Federal Reserve. At a 5.37% commission rate, this would translate to approximately $22,430.49 in commissions.

Despite these significant costs, 48% of homebuyers and sellers surveyed by LendingTree didn't know how much their agent received in commission for their latest home transaction.

"The homebuying and selling experience can be so overwhelming," said Channel. "Unless you're paying close attention, it's kind of hard to come up with an itemized list of what exactly you spent and where exactly you spent it."

Some homeowners opt to avoid real estate agent fees entirely by selling their homes themselves. These "for sale by owner" (FSBO) transactions made up 10% of home sales in 2021, according to the National Association of Realtors.

Advancements in technology have made it easier for individuals to buy and sell properties independently through online platforms. However, the process can be more time-consuming and complex than anticipated, Channel cautioned.

"Real estate agents are doing a lot of work behind the scenes that isn't immediately apparent to sellers and buyers," he explained.

Agents possess knowledge of local housing market trends, understand how to maximize a property's sale price, and are familiar with the required transaction paperwork, Channel noted.

"All housing markets have their own individual quirks," he said. "If you're a seller and you try to do it on your own, you might miss something or not position yourself in a particularly strong way to get a good deal and sell your house for as much as you could."

How to negotiate real estate agent fees

When engaging with real estate agents, it's essential to inquire about their fees and understand the reasons behind them. Agents typically base their rates on factors such as the property type and perceived ease of sale.

"Agents' livelihoods depend on the commission fees they earn," noted Channel.

If you're concerned about costs but like an agent, try negotiating or seeking a discount. You might have more bargaining power if your home is in demand, has a high value, or if your local market is competitive.

Research various agents in your area and compare their fees. Some agents offer lower commissions, ranging from 1% to 1.5%, but may provide fewer services. Others operate on a flat-fee basis.

In the case of a dual agent representing both the buyer and seller, remind them that they don't need to split the commission. Even with a slightly reduced rate, they could potentially earn more than if they split a 5% commission with another agent, Channel explained.

Antitrust lawsuit may have ripple effect on fees

The lawsuit mentioned involves an antitrust case where the National Association of Realtors (NAR) and several major real estate brokerages were accused of conspiring to artificially raise agent commissions. The lawsuit resulted in a federal jury finding the NAR, Keller Williams, and HomeServices of America liable for nearly $1.8 billion in damages. Re/Max and Anywhere Real Estate settled before the trial, each paying damages.

In response to the verdict, the NAR has filed motions asking the court to set aside the verdict and enter judgment in favor of NAR, or alternatively, order a new trial. These motions are part of the post-trial process, and rulings are expected in due course, according to a spokesperson from NAR.

If the verdict in the antitrust lawsuit stands, it could lead to significant changes in the real estate industry. Home sellers may no longer be required to pay the buyer's agent, which could impact how buyers and sellers approach real estate transactions.

With more transparency around agent fees, buyers may choose to bypass agents or negotiate fees more actively. This development underscores the importance of paying attention to all costs involved when buying or selling a home, according to experts.