Are low-commission Realtors worth It?

Buying or selling a home can be a costly process, and one of significant expense involved is the commission paid to a real estate agent, which ranges from 5% to 6%. This could amount to tens of thousands of dollars in some areas depending on the price of homes. Another type of real estate agent has emerged; a low-commission Realtor, true to its name, charges less than average.

Low-commission Realtors typically offer limited services compared to traditional agents. While you can potentially save thousands of dollars listing your home with a low-commission real estate agent instead of a traditional one, there are some drawbacks to consider. 

How do low-commission real estate work?

Low-commission Realtors are licensed real estate agents who offer to sell your property for less than traditional agents' commission rates. Typically, listing agents with low-commission charge a lower percentage of the sale price. They cater to homeowners looking for ways to reduce the cost of selling their homes while still getting top-notch services.

In some cases, they may only handle the paperwork, negotiation, and closing process and leave the marketing and showing of the property to the homeowner. Alternatively, they may charge extra fees for additional services like home staging or professional photography.

One way low-commission agents work is by leveraging modern technology to reduce their operating costs. They run their businesses online, offer virtual tours, and use digital marketing to reach customers. Also, they may have a leaner business structure, which means they have fewer employees and lower overhead costs.

Low-commission agents appeal to homeowners looking to maximize their equity, particularly in the seller's market. Because they charge less commission, homeowners stand to save thousands of dollars on the sale of their property.

What’s considered low real estate commission?

Low-commission Realtors typically charge around 1% to 2% of the sale price. That means you'd pay $4,000 to $8,000 if you've listed your home at $400.000. With a regular agent, you'd pay 2.5% to 3% or $10,000 to $12,000 — a big difference.

Keep in mind that even if you hire a low commission realtor, you won't get you out of paying the buyer’s agent fees. 

That means you might pay anywhere from 3.5% to 5% in fees, the top end of which is similar to paying for a full service agent.

What are the benefits of working with low-commission real estate agents?

A good low-commission real estate agent offers you the same services as a traditional agent, but at a fraction of the cost and can be an alternative to selling your house without one altogether. In addition to saving you money, here are some of other benefits to working with these professionals:

• Industry experience: It’s a common misconception that low-commission Realtors lack experience, but there's no reason why they wouldn't have many years of experience or have successfully sold many homes. Their lower rates attract more clients and allow them to focus on providing top-notch services. Agents who charge lower lates should have the same licenses, training, and certifications as traditional real estate agents, so you don’t have to worry about receiving subpar service.
• Personalized services: High commission real estate agents often have a lot of clients and may not be able to offer you personalized services. On the other hand, low-commission Realtors typically have fewer clients, which allows them to focus more on your specific needs. They may be more accessible, have more time to answer your calls and emails, and provide a more personalized experience.
• Better flexibility: low-commission Realtors may offer more flexible pricing options than traditional real estate agents. They may be more open to negotiating their commission rates, letting you choose services that best suit your needs and budget. They may also offer a la carte services, allowing you to pay only for the services you need, such as listing on the MLS, professional photography, or open house events.

What are the drawbacks of working with low-commission Realtors?

Many homeowners are tempted to work with low-commission Realtors due to the promise of paying lower fees, but such a decision can end up being catastrophic in the long-term. Some of the major drawbacks that come with working with low-commission agents include:

• Limited marketing resources: One of the main drawbacks of working with a low-commission Realtor is that you’ll likely get limited marketing resources. In order to sell your home, your agent needs to reach a wide audience to generate interest and obtain offers. But with limited resources at their disposal, your agent may not be able to perform the marketing activities necessary to attract the right buyer. Your home may end up sitting on the market for a long time, leading to a lower selling price or no sale at all.
• Fewer open houses and showings: low-commission Realtors have to cut corners somewhere to make up for their lower fees, and one of the areas they often skimp on is open houses and showings. Such agents may only hold one or two open houses or showings due to their tight schedule, which can ultimately reduce the amount of interest and potential buyers for your property. This can also prolong the sale process, which is frustrating for homeowners who want to sell their home quickly.
• Hidden fees: Agents may lure homeowners looking to sell with the promise of lower fees, but there may be hidden costs that are not always apparent in the preliminary agreements. You may end up paying extra for things like home staging, photography, or other marketing materials. This can add up over time, negating any initial savings you hoped to gain from working with a low-commission agent.

The best low-commission real estate agents and companies 

Just as is the case with traditional real estate agents, not all low-cost Realtors or real estate firms are created equal. While saving on commission fees is essential, it's equally vital to work with a reputable and experienced professional who can guide you through the complexities of real estate transactions and help you achieve your goals. You’ll find some of the best low-cost agents working for the following firms:

• Redfin: Redfin is a well-established and reputable low-commission real estate firm that operates in various cities across the United States. They offer a competitive commission structure that typically comes in at a lower percentage compared to traditional real estate agencies. Redfin agents are salaried employees, which means they’re not solely motivated by commission, allowing them to focus on providing quality service and guidance to their clients. However, Redfin isn’t without its disadvantages.
• Clever Real Estate: Clever Real Estate is a relatively new but rapidly expanding platform that connects home buyers and sellers with top-rated, local real estate agents who offer discounted commission rates. They negotiate with top agents on your behalf, ensuring you get the best deal without compromising on service. Clever's model is built on transparency, efficiency, and customer satisfaction.
• Houwzer: This full-service real estate company stands out with its flat-fee pricing structure. This means that regardless of your property's price, you know exactly how much you'll be paying, which makes budgeting much easier.

Should I use a low-commission agent?

Wondering if working with a low-cost Realtor is right for you? While saving money on commission is nice, your focus should always be on finding someone with the right mix of experience, dedication, and expertise to ensure a successful home sale. 

Whether it’s a good idea to hire an agent who charges low commission depends on how much effort you personally want to put in towards selling your house, and how fast you’re looking to sell. When you prioritize experience and dedication over cost, you can increase your chances of selling your home for the best possible price with a full-service agent, who provides a comprehensive range of services for a standard rate. 

Alternatives to hiring a low commission agent include selling on your own as "For Sale By Owner" (FSBO) property, or selling your home to an iBuyer if you’re looking for a fast closing. However you may end up losing out on earnings with these options, even if you save on real estate fees.

Looking to sell your house? Orchard offers robust services, like guaranteeing your home sale and getting your home show-ready, for fees comparable to the average real estate agent. More on how Orchard works here.

FAQs

Here are more answers about paying low commission to real estate agents.

Q: What do most realtors charge for commission?

In the United States, the typical commission rate is around 5% to 6% of the home's selling price. However, it's important to note that commission rates are negotiable, and they can vary depending on factors such as location, the specific real estate market, and the services provided by the realtor.

Q: What states charge the highest commission?

The commission rates charged by realtors are not regulated by states. The commission rates are typically determined by the prevailing market conditions and competition among real estate agents in a particular area. Therefore, it is not accurate to say that specific states charge the highest commission. The commission rates in any given state can range from the average national rate of around 5% to 6% to higher or lower rates depending on local factors. For example, Georgia real estate commission rates were 5.76%. in 2022, while the average rate in Oregon was under 5%.

Q: What factors determine the commission rates of Realtors?

Commission rates can vary among agents and are typically negotiable. Factors that can influence commission rates include local market conditions, the complexity of the transaction, the level of service provided, and the Realtor's experience and reputation.

Q: How can I find a reputable low-cost Realtor?

To find a reputable real estate agent, regardless of their commission rates, research and due diligence are essential. Seek recommendations from trusted sources, read reviews, and interview multiple agents to understand their experience, services offered, and how their low commission rate aligns with your needs and expectations.