Why Some Real Estate Agents Discount Their Commission

Have you ever heard the expression, “You Get What You Pay For?” If you have, you know it essentially means that quality comes at a price. This applies to everything in life. As an example, a discount handbag might be $40 at the flea market, but comparative designer ones cost thousands of dollars. Truthfully much of that markup is just because of name recognition or branding, but a lot of it is in the quality of fabrics, the level of customer satisfaction, as well as the handmade aspect as opposed to items created on a production line.

Real estate agents are not handbags, but their pricing works in a similar way. Truthfully, there is no set price for a real estate agent, but more so, most agents and brokerages have pretty similar commission structures in a given market. This structure can be thought of as the industry standard and fair across most markets. In general, the fee for the agent on any given listing is 6%. This fee is split equally between the listing agent (the agent who is responsible for listing the house on the market and representing the seller) and the buyer’s agent (who is representing the buyer’s interests and needs). So generally, each agent will receive 3%, sometimes more.

There are some agents out there who, in an effort to get your business over the next guy, will tell you that they’ll only charge 1.5 or 2%, instead of 3%. This could be a difference of thousands of dollars, depending on the price of the listing. While this in theory seems like a good idea, you should carefully consider the following:

There is a reason why this agent is discounting their fee

They may not be as up to par on experience as other agents, may not have good reviews, or may not have built up a solid network. Whatever the reason, this agent is docking themselves hundreds or thousands of dollars in commission, by choice. They either don’t believe in the quality of their work or they feel desperate to get a listing or a sale completed. If you saw a Louis Vuitton bag with a $100 price tag, your first question would probably be “is it real?” — you need to ask yourself the same question when it comes to discount agents.

Often times the real estate agent does not pocket the entire commission

Much of the fee goes to their broker, or brokerage firm, some of it is spent on photography, advertising, taxes, and marketing materials for your listing. An agent discounting the commission means that they probably took the cheap way out on what was necessary to sell your home (or on some of the legwork necessary for you to purchase your home), and that should also be a red flag to you. Maybe you saved $1,000 in listing fees, but you may have missed out on an offer that would have been $10,000 higher. Selling or buying a house is a 6-figure deal— it’s important, and you need the right professional who will do it in the right way. Try for quality over quantity of services.

Finally, by an agent discounting the fee — they may be angering other agents.

Most times, they will also discount the price of the agent who is working on the other side of the transaction. Many times discount agents get bad reputations in the field, and other agents may not want to do business with them. The last thing you need when trying to buy or sell a home is a Realtor who, many other Realtors, do not want to work with. You’ll potentially miss out on a lot of opportunities with your sale.

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