One of the most frequently asked questions that I’m faced with is, how much is it going to cost to sell my home in the Bay Area? When people ask this question, they’re really asking me how much my commission rate is for listing, marketing, and selling a home. There is a lot of debate surrounding commission rates, and sadly, there is a lot of misinformation. If you’re considering listing a home in the Bay Area and you’re curious about how much commission you can expect to pay, here’s a look at the facts.
What is the Standard Commission Rate in the Bay Area?
Before we truly dive into what you can expect to pay in commission, we should address this first: there is no standard commission rate. Now, this does not mean that there isn’t a typical or average commission rate, but there is not a standard commission rate. In fact, according to California real estate law, it’s illegal for brokerages to come together to create a standard commission rate within a given area. Since this process would lead to price fixing and collusion between brokerages, no real estate agent in this area can ever tell you that there is a standard commission rate for their services. Commission rates are always negotiable.
How to Choose a REALTOR Whose Commission Rate Works for You
Everyone who is considering listing their home with a real estate agent wonders what kind of value they’re going to get out of their commission. After all, we live in a competitive real estate market in one of the most beautiful areas of the United States. Given the demand for homes here, do you really even need to pay a REALTOR to sell your home? The answer to that question is yes, if you want to make sure you’re going to net the most amount of money possible from the sale. When you work with an experienced REALTOR who has a proven track record of success, you know that you’re getting someone who understands what it takes to get his or her client an excellent price for their home in an area where homes routinely sell for hundreds of thousands, and even millions, of dollars.
In order to better understand how to choose the right REALTOR for your listing, let’s consider a hypothetical situation. Assume for a moment that you’re looking for someone to dig a ditch on your property. Through some market research of your own and talking to other people who have had ditches dug, you find out that the average price for a ditch of the size that you’re looking for is around $5,000. After you look for some phone numbers, you find someone who says that they can dig your ditch, but they’ve only dug one or two ditches of the size that you’re looking for. However, when you ask them how much they’re going to charge, the ditch digger tells you that the average price for these services is $5,000.
You’ll probably have some questions. What if they take too long to dig the ditch? What if the ditch that they dig isn’t deep enough or wide enough? What if the inexperienced person that you’re considering hiring for the job doesn’t have access to the tools that he or she needs? There are a lot of questions that you’re going to ask yourself before paying someone who lacks experience the same price that you would pay someone who has been digging ditches for decades.
Is it not the same for REALTORS? Yes, it is! If you’re considering selling your home, why would you pay someone who has a poor or brief track record in the Bay Area the same commission rate that you would pay someone who has closed hundreds of transactions over decades? Why are sellers paying the same commission rate, regardless of experience levels?
In most cases, it’s because people who are selling their homes don’t realize that commission rates are negotiable. However, there’s something that you should understand about real estate agents who are willing to cut their commission rate.
Now that you know that real estate agents are allowed to negotiate their commission rates, you need to know how to handle that process. Before you list your home, you may decide to interview multiple REALTORS. This allows you to not only ask them what they’re going to charge you, but you can also find out how they’re going to go about marketing your property, what pre-marketing services they provide, how long they expect it to take to sell, and how much money you can expect to walk away with at closing.
However, when you ask the agent if he or she is willing to cut their commission, their answer should dictate your next move. If they say that they will drop their commission rate, you should walk away from that REALTOR.
Wait, what?! Didn’t I just say that commission rates are negotiable? Didn’t I just say that you can in fact find agents who charge less than others?
Yes, I said exactly that.
However, if an agent is willing to drop their commission rate, it usually reveals two things. First of all, it means that they lack experience. In most cases, an experienced agent who has a proven plan for selling homes isn’t willing to drop their rates. Secondly, agents who are willing to invest the time and resources necessary to sell a home in a competitive market like the Bay Area aren’t willing to cut their rates, because they know the worth of their services. Simply put, they provide greater value for the money they charge than other agents who can’t stand behind the fees they charge.
How Much Commission is Typical?
With all of that understood, I should probably answer the original question. How much commission to Realtors in the Bay Area charge to sell a home? In most transactions, the sellers’ agent and the buyers’ agent split the commission 50/50. After researching thousands of transactions, I found that the average buyers’ agent received a 2.5% commission. In fact, they received this amount over 90% of the time, in the (sizable) I used in my research. Therefore, I feel it’s safe to say that 5% is the average commission rate charged by most Bay Area REALTORs when they list a property for sale.
Your own REALTOR may charge more, or may charge less. Regardless of whatever commission a REALTOR proposes to charge you, you should be cognizant of the fact that not all REALTORS provide the same value. You may well find a REALTOR charging, say, 3.5% who offers very little value for that, whereas another REALTOR may charge 6-7% and provide much greater value in terms of quality of service and, of course, the final result – the very highest sale price for your home, on the best terms possible.