Street Cents
4:00 am
Tue March 6, 2012

Real estate commissions aren't set in stone

KPLU's  John Maynard posed this question to Seattle-area real estate appraiser, Richard Hager: "If I sold a $2 million dollar house and paid the real estate agent his standard commission, then he'd get $180,000 out of the deal. Is that a negotiable situation?" Hagar's answer?

"Absolutely. The commission can be anywhere between zero and the moon. It's a totally negotiable item. As you know, it's something that the seller typically pays. The most common real estate commission for residential properties is around 6 percent, but also understand that it's variable."

That means, for example, that the first $500,000 of the $2 million sale would be at 6 percent and then after that the commission could go down to  4 percent, or even 3 percent.

Different types of properties have different levels of commissions

It's not unusual, Hagar says, to see a 10 percent commission on the sale of a vacant lot. And recreational property like timeshares and camping clubs can have a commission as high as 50 percent. Why? It's because of the smaller dollar amount of the sale. A timeshare condo or a vacant lot could sell anywhere from $10,000 to $20,000. But real estate agents still have fixed costs they need to cover, including office space and advertising, so they can't afford to go low on the commission.

What if a house sells right away?

Maynard had another question for Hagar - this one based on a real-life experience. He bought a "fixer upper" during the go-go real estate years in the 1990's and put a lot of sweat equity into it. Once he got the house in good shape, he found an agent to help him sell it. It sold in one day!

Maynard paid the agent his six percent commission but regrets the fact that he didn't negotiate with the agent beforehand. Could he have said ahead of time, "Look, if it sells quickly, are you willing to lower your commission?"

Hagar says that's a perfectly acceptable conversation to have with an agent, particularly if it looks like the property might sell within 24-48 hours. "The agent's advertising costs might be lower if it sells quickly, so that might be something the agent would consider."

Still, Hagar stresses that real estate agents don't keep all of the commission. Basically, six percent on an average residential property gets divided out: A percentage goes to the selling agent, a percentage goes to the listing agent, and then their companies get a percentage.

"No one person is grabbing all the gold," says Hagar. "Real estate agents, the good ones, work their fannies off."  If it works right, everyone benefits.

Street Cents” is a monthly feature exploring real estate trends in the Northwest. The feature is published here and airs on KPLU 88.5 on the first Tuesday of the month during Morning Edition, All Things Considered and on Weekend Saturday Edition.