There are many reasons why the fees are all over the place when it comes to negotiating the listing agent’s commission. Remember that clients who wish to purchase property do not have to negotiate the fees because the fees are dictated by the listing agreement and published for each property. This fee is almost always 2.5 percent or 3 percent.
Part of it comes down to the company where the agent is employed. A large company such as Coldwell Banker, Alain Pinel, and Intero will have many guidelines for the agent that dictates a general range of commissions. The brokerage firm takes out their office costs and depending on the agent, they will also take between 10 and 50 percent of the commission. A small company with a single broker agent or relatively few agents can negotiate the fees to whatever their current bank account and work load dictates. But they still have to pay 3 percent to the agent representing the buyer. And the discount firms often advertise that they can process the transaction for between 1 and 2 percent. Remember to read the small print and realize that the advertisements in the paper and the internet are not always inclusive of the full amount that a client will pay. For example, a discount broker may say 1 percent commission, but then there is another fee of 3 percent for the agent representing the buyers, and then advertising and transaction fees often add up to the thousands of dollars. The net result no matter which type of brokerage firm is used will always add up to between 4.5 percent and 6 percent.
There are many pros and cons to each type of brokerage firm. Using a large company will provide the legal protection and disclosure system that will result in less legal problems downstream, but will cost towards the higher end of the fees spectrum. A large firm also has the most connectivity with other agents to gain the most exposure for a property which usually results in a higher sale price for the client.
Using a small brokerage firm may save money as they have quite a range of fees, but is highly dependant on the experience and training of one person, the founding broker. And using a discount brokerage firm can save money if the transaction requires no advertising, has no complexities, and the minimum amount of legal, disclosure, and accounting issues are required. Considering the highly litigious nature of real estate, this is not a good place to save money. As in other fiduciary roles, the cheapest lawyer and the cheapest accountants are not always the best. There are places for all levels of expertise, service levels, and price ranges.
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