- Are Low-Commission Real Estate Agents Legitimate?
- How Does Low-Commission Real Estate Work?
- Pros of Low-Commission Real Estate Agents
- Cons of Low-Commission Real Estate Agents
- Considerations When Choosing a Real Estate Agent
- Decide Whether a Traditional Real Estate Agent is Right for You
The Pros and Cons of Low-Commission Realtors
One of the tenets of real estate is that you shouldn’t sell your house until you can at least break even on the sale. While this isn’t always possible, it guides homeowners to do the math on the current value of their home minus any closing costs and Realtor commissions.
The average seller pays around 6% of their home’s value in Realtor commissions. With the median home selling for $412,000 in the United States as of September 2023, these commission costs hover around $24,720.
Some homeowners are looking into cheaper alternatives. They can’t afford to give thousands of dollars to the agents involved in the sale or simply want to maximize their profits. This has led to a rise in demand for low-commission real estate agents. These are Realtors who accept smaller fees in exchange for similar services.
In this article, we’ll help you learn more about low-commission listing agents and how they set their fees. This can help you decide whether hiring these agents is right for you.
Are Low-Commission Real Estate Agents Legitimate?
Yes, low-commission real estate agents are legitimate. These are real estate professionals who accept lower rates to win your business. These real estate agents charge a reduced commission rate (usually either 1-2%) or a flat fee for selling your home. The flat fee proposed by your Realtor could be as low as $500 or higher than $5,000.
There are multiple reasons why a Realtor would accept a lower commission rate. They might be new in the industry and eager to grow their experience and leads. These agents also might operate in a competitive region where there are more Reators than clients. Offering lower commission fees can win more business over other agents.
If you are interested in hiring one of these Realtors, communication is key. Make sure you have a clear understanding of the agent’s expected fees and your total closing costs. Then ask for a list of services they provide. You need to make sure you aren’t losing out on key services and customer support options because you opted to hire a discount agent.
How Does Low-Commission Real Estate Work?
Low-commission agents often claim you can sell your house for a much lower price. However, they only advertise the fees that they will take home – not the fees that the buyer’s agent will claim. When you pay a 6% real estate commission, it usually gets split between the seller’s agent and the buyer’s agent, with each Realtor taking home 3% in fees.
When you see an ad saying you will only pay 1% commission to sell your house, you are actually paying 1% to the seller’s agent and 3% to the buyer’s agent. In reality, you are paying 4% commission total, not 1%.
The same concept applies to a flat-fee Realtor. You can budget for their fee but need to set aside 3% for the buyer’s agent commission.
That being said, it is possible to save a lot of money on real estate commissions by hiring a low-cost listing agent. Here is the breakdown of potential savings, using an estimated final sale price of $400,000.
|Buyer’s Agent Commission
|Seller’s Agent Commission
|Total Commission Costs
|$1,000 (flat fee)
While you can save a lot of money by hiring a low-commission real estate agent, they might provide fewer services because of the lower pay rate.
You also still have to pay the buyer’s agent in full. To save more money, you could potentially negotiate a lower commission rate for the buyer to pay their agent as part of the sale.
Pros of Low-Commission Real Estate Agents
There are several benefits of hiring a low-commission real estate agent. This subset of Realtors continues to grow as more people discover them and seek out their services. As property prices continue to increase, more people might want low-cost options instead of traditional agents so they can maximize their home sale profits. Here are a few reasons to go this route.
The main reason to opt for a low-cost Realtor as opposed to a traditional agent is the potential savings. Even a 1% savings on commission can give sellers back thousands of dollars on the home sale. This makes the process more profitable while giving sellers more money for the next stage in their lives.
As you can see in the chart above, a 1% savings on a $400,000 home sale is $4,000. That money can be used to hire movers (making the sale less stressful), pay for temporary housing, or add to your down payment. The extra money in your down payment might be the difference between paying private mortgage insurance (PMI) and being exempt from that fee. A few thousand dollars extra can also lead to a lower interest rate, which means extra savings in the long run.
Don’t overlook the value of a small commission discount. Save money when you can during the home sale.
One of the main reasons why people choose traditional agents of low-cost Realtors is because they want high-quality services throughout the home sale. There’s a strong belief that you get what you pay for in terms of real estate agents. However, not every low-commission real estate agent offers limited services. You might find that you get the same amount of service from a low-cost option as a traditional agent.
Agents often accept lower commission fees in exchange for growing their client base. They take on more clients each year which makes up for any potential loss from the discounted commissions. For example, the Realtor in a competitive market might close on two leads per month at their full rate. By offering a discount, they can close on 10 leads and make significantly more money overall.
Offering commission discounts is a popular tactic in markets where there are a lot of local agents Each seller might have multiple Realtors trying to win their business. You can still get a full-service experience at a discount price.
Low-commission real estate agents also give sellers more power over how involved they want their Realtors to be.
In a hot market, a seller might receive multiple offers within a few days of the property hitting the market. If this is the case, the listing agent doesn’t have as much work to do. They don’t need to stage the property, invest in marketing it, host open houses, and deal with intense negotiations. Some sellers look for low-cost services because they know their agent won’t have to do much work.
Look at different low-cost real estate agent profiles to see what services they offer. You might be able to hire a mid-tier Realtor who isn’t as involved as a traditional agent but who offers more services than a bare-bones option.
Cons of Low-Commission Real Estate Agents
Selling a home is a major decision, which is why you need to carefully consider the real estate agent you choose.
There are a few potential drawbacks to hiring a Realtor who accepts a lower fee, as not all of these agents will provide quality experiences.
Potential for Limited Services
While it’s possible to find full-service agents who accept discounted commissions, some Realtors reduce their services when their fees are cut. For example, you might meet with a real estate agent who offers concierge services for a 3% commission and reduced access for a 2% commission. Your Realtor might not be as responsive when you have questions or need help because you opted for the discount rate.
Make sure you are clear about your expectations when you hire a low-commission real estate agent. You don’t want to settle on a listing fee and then realize you aren’t getting the support you need.
Less Personalized Attention
Every real estate agent runs their own business, which means they set their prices and determine how many clients they can handle at once. While there might be some limitations set by their brokerage, your agent decides what working conditions are reasonable.
Some agents try to pack on a low of low-fee clients to make up for lost commissions. At first, this makes sense and is a good way for an agent to grow their experience and client base. However, if an agent takes on too many clients at once, they might get overwhelmed by their workload and struggle to keep up.
There also might be times when your real estate agent accepts a lower commission on your home sale, but not for their other clients. You could receive less attention because your Realtor is focusing their time on customers who will give them a larger payout.
Impact on Sale Price
In theory, there shouldn’t be a correlation between Realtor commission and sale price. Traditional real estate agents try to get the highest prices for their clients’ homes because it means they get higher commissions. Even if you hire a discount real estate brokerage, they should try to maximize the profits of home sellers because they can profit, too.
However, there are times when discount brokers want to sell their clients’ homes for less to close faster. They want to close on as many properties as possible so they collect their Realtor fees faster. As a result, your low-cost agent might try to connect you with a real estate investor who wants to buy your house for less in order to flip it.
Regardless of whether you hire traditional Realtors or low-commission real estate agents, make sure you know the value of your property. This will ensure you get a fair price for your home.
Considerations When Choosing a Real Estate Agent
It’s in the best interest of home sellers to interview multiple agents before hiring the best one. You can get multiple perspectives on your home sale and learn what is included with each listing option. Here are a few things to consider when you meet with real estate brokers who could potentially sell your house.
Evaluating Agent Track Records
One of the best things you can do when hiring an agent is to look at their track record. You don’t necessarily need to hire the most experienced Realtor in your area, but you want to find someone who is a good fit for your home sale. Here are a few elements to evaluate:
- How many clients does the Realtor juggle at once?
- What is the average home value they represent?
- Who is the average seller the Realtor works with?
- How effective is the agent at selling houses quickly and at fair prices?
It might be better to hire a Realtor who specifically works with homeowners in your neighborhood or housing price points compared to another agent who handles luxury homes or operates outside of your area.
Understanding Your Needs
Before you can hire a local agent, you need to be aware of your priorities, goals, and needs. For example, some home sellers are in a rush to move out of their homes and want to get through the process quickly. Others want to sell their homes but stay in the property with a rent-back agreement for a few months before they move out.
Learn what potential realtors charge and the services that come with them. You might want to pay more to hire an agent who provides professional photography and 3D video tours compared to a discount real estate broker who only snaps a few photos on their phone.
Decide Whether a Traditional Real Estate Agent is Right for You
Most people want to save money whenever possible during the sale. However, that doesn’t mean you should hire the cheapest Realtor possible. Interview multiple agents at different price points and learn about the services they offer. You might discover that other agents cost a little more but will make the experience better. You can also ask a full-service Realtor for a commission discount as part of the negotiation process.
To find qualified agents in your area, turn to Fast Expert. You can review detailed profiles of Realtors and reach out to a few potential agents. This is a great way to find someone you trust to sell your home.
Try FastExpert today and take the first steps to list your property.