Negotiation is one of the most essential skills for a real estate agent. You’ll negotiate on behalf of your buyer and seller clients to secure the best price and favorable terms as they buy, sell, or rent properties. Additionally, you’ll negotiate your commission split with your brokerage, which will determine how much of your earnings stay with you and how much goes to the firm.
Related Article: Finding the Right Real Estate Brokerage
Finally, you’ll also negotiate with your clients to determine the compensation for your services. You deserve to be fairly compensated for your expertise. Here’s how to effectively negotiate your commission as a real estate agent.
Key Takeaways
- Agents need to be prepared for clients negotiating commission rates, especially with recent industry shifts. Understanding various commission structures, like flat fees and tiered commissions, can help agents offer flexible options.
- Effective commission negotiation depends on the type of client. Agents should emphasize their value, market expertise, and past successes when negotiating with first-time homebuyers, repeat clients, high-value property clients, or corporate clients.
- Presenting data, market analysis, and demonstrating your service quality are crucial for justifying a commission rate. A well-prepared listing presentation can help clients see the value behind your commission.
- Agents should avoid immediately lowering their commission upon resistance, stay calm when challenged, and focus on clear communication highlighting their expertise and service value.
Understanding Real Estate Commissions
Real estate commissions are negotiable, and they always have been. However, with recent discussions in the news, more of your clients may now be inclined to negotiate your fees.
Traditional commission structures typically involve a percentage of the property’s final sale price. For instance, a homeowner might agree to pay real estate professionals 5 to 6% of the sale price to find a buyer and manage the sale’s details. This commission is usually split between the seller’s agent (listing agent) and the buyer’s agent, with each typically receiving 2.5% to 3% of the sale price.
Each real estate agent then shares a portion of their commission with their brokerage. The split between an agent and their brokerage can vary depending on the agent’s experience and sales volume.
Alternative commission structures
Consider these additional commission structures when negotiating with clients:
- Flat Fees: In some situations, a flat fee may be charged instead of a percentage-based commission. Discount brokerages often use this model, though it can also apply in unique selling circumstances.
- Tiered Commissions: Some agents operate under a tiered commission structure, where the percentage changes based on the final sale price. For example, 6% on the first $500,000 and 4% on anything above that amount. This model is often used in commercial real estate transactions.
- Buyer’s Agent Commission: Typically, the seller determines the buyer’s agent commission when listing the property. However, buyers are now required to sign agreements with their clients outlining the terms of their compensation, which means the buyer’s and seller’s agent commissions may no longer be linked in every transaction.
- Listing Agent Commission: The listing agent’s commission often covers the costs of marketing the property, such as photography, advertising, and open houses, as well as the agent’s expertise and time.
- Rebates to Buyers: In certain areas, agents offer commission rebates to buyers as a business growth strategy. In this scenario, a buyer’s agent agrees to return a portion of the commission received from the seller to the buyer, who can then use it for closing costs or other expenses. However, this practice is not permitted in every state.
Factors influencing commission rates
Several factors influence commission rates, and while we won’t explore these in-depth, they’re important to consider when comparing commissions:
- Your state
- Market conditions (buyer’s market or seller’s market)
- Agent experience
- Type of transaction (commercial, agricultural, residential, etc.)
- Type of client (first-time homebuyer, repeat client, etc.)
- Agent’s competitive advantage
- Agent’s negotiation skills
Negotiating with Different Client Types
Negotiation skills are essential for all clients, but your approach may vary depending on whether you’re working with first-time homebuyers or corporate clients. Here’s a brief overview of negotiating with different client types:
Negotiating with first-time homebuyers
You must clearly communicate your value to secure a higher commission from first-time homebuyers. Highlight your expertise, comprehensive services, and strong negotiation skills. Reassure your first-time clients by explaining the entire process and answering any questions they may have. Share testimonials from other first-time buyers to showcase your track record.
I ensure that clients understand every aspect of the transaction, including the benefits of working with a skilled negotiator. I break down the services included in my commission and how they contribute to achieving the best possible outcome. Transparency builds trust and justifies my rate. – Kenneth Sesley, Top Ranked Home Buyers
Negotiating with repeat clients
When negotiating a higher commission with repeat clients, emphasize past successes you’ve achieved together. Remind them of your reliability in managing their transactions. Consider offering enhanced or exclusive services, such as covering the cost of a deep clean for the home or providing a drone video for the listing.
Negotiating with high-value property clients
If you have experience or specialized training in the luxury market, you know that affluent clients often respond to detailed market analysis and custom marketing strategies. Affluent clients also expect discretion, professionalism, and the ability to navigate complex, high-stakes deals.
Negotiating with corporate clients
When negotiating your commission with corporate clients, highlight your expertise in managing complex, multi-party transactions. To support your case, provide detailed data, such as a cost-benefit analysis.
Strategies for Successful Negotiation
While entire books have been written on negotiation, here are a few key strategies to keep in mind:
Timing and setting
Clients may be more open to discussing commission after you’ve demonstrated your value. Prepare a personalized listing presentation with a detailed property analysis and marketing plan.
Ensure the environment is free from distractions, allowing both parties to focus on the conversation.
Building a strong case
Clearly articulate why you’re the best agent for the job. Present data comparing your commission rates with other agents in the area, explaining how your rate aligns with industry standards or how your services surpass those of lower-commission competitors.
Emphasize your experience and local market knowledge. Share success stories that demonstrate your ability to sell properties efficiently and at a favorable price.
Provide a detailed overview of your services, including professional photography, staging, marketing, open houses, and negotiation.
Effective communication techniques
Practice active listening by paying close attention to your client’s concerns and priorities.
Frame the conversation as a collaborative effort rather than using too many “I” statements. Phrases like “Let’s find a solution that works for both of us” can create a sense of partnership.
Begin the negotiation by confidently stating your preferred commission rate and immediately summarizing your key benefits and services. This reinforces that your rate is justified by your high level of service and expertise.
Resist the temptation to fill the silence after presenting your rate or making a key point. Silence can prompt the client to share their thoughts or concerns, providing you with valuable insights into their priorities and objections. Practice responses to the most common objections.
Common Mistakes to Avoid During Client Negotiations
Don’t immediately lower your commission at the first sign of resistance; doing so can undermine your perceived value. Focus on justifying your rate before considering any concessions.
Avoid overwhelming the client with too much data; stick to the most compelling points that convey your value.
If a client questions your rate, stay calm and professional. Defensiveness can lead to communication breakdowns and erode trust.
This advice is just the beginning of what you can learn about negotiating with real estate clients. There’s a lot to master, and the best agents invest time in practicing their presentations and responses. Make time in your schedule to improve your negotiation skills.
Also, consider professional negotiation training. The Real Estate Negotiation Institute (RENI) is North America’s top real estate negotiation training provider. Our courses will help buyer’s agents navigate new post-settlement rules while building trust with new clients. Learn more about RENI course options and sign up for real estate negotiation training today.
Expand your knowledge of the California real estate market through continuing education courses with Allied Schools. Whether you’re an agent in San Francisco, Los Angeles, or San Diego, you’ll gain valuable insights to help you excel in your specific market.
