While both buyers and sellers typically use real-estate agents, traditionally, only sellers have paid directly. The commission is then split between the listing agent and the agent representing the buyer.
Critics have said for years that this structure limits competition, lacks transparency and artificially inflates both commissions and home prices. In October 2023, a jury ordered NAR and a number of well-known real estate brokerages to pay $1.8 billion in damages in a Missouri–based lawsuit arguing as much.
While NAR initially indicated it would appeal the verdict, in March the trade group opted to settle the case instead. The plaintiffs agreed to release NAR from the jury verdict in exchange for $418 million in damages and a host of new commission-related rules that are expected to go into effect in August (pending judge approval).
Those rule changes include:
Mentions of buyer-agent compensation will now be prohibited in listings on Multiple Listing Services, the regional databases agents use to list and market properties. All commission splits will need to be negotiated separately, giving sellers more power over what—if any—compensation they’ll offer to buyer agents.Buyers and agents will need to sign a contract, detailing the fees and compensation they’ll owe, before even touring a property. This may open the door to more negotiation for buyers and new pricing models—like sliding-scale commissions or an a la carte approach, where buyers pay per service.
It’s not yet clear how these rules will play out on the ground, but they could lead to a major shift in how real-estate agents get paid and who uses an agent. Experts also predict that average commissions could eventually fall by as much as 30%.
How much are current real-estate commissions?
Real-estate agents are paid a commission based on the sale price, and for now, buyers and sellers pay an average of 5.45% the transaction amount, according to research by real-estate brokerage Clever. However, the typical commission varies by location, ranging from 4.90% in Washington, D.C. to 6.07% in Missouri.
Here’s a look at average real estate commission by state:
“Commissions can and do vary widely,” says Adie Kriegstein, an agent with Compass Real Estate in New York. “Location is a huge factor, as markets often vary city to city and state to state. On top of location are just the market conditions: Is it a buyer’s market, seller’s market or simply one that is transitional? The type of property also changes commission rates.”
In the luxury market, for example, commission percentages can often be lower. This is because higher-end properties come with higher price tags, leaving agents more room to negotiate and still get a decent payday.
The exact commission percentage is typically negotiated upfront and will be detailed in the listing contract with a seller. So, for example, if the agreed-upon commission was 5% and they sold a home for $500,000, the agent’s real-estate brokerage would get a $25,000 commission check once the transaction was complete.
It sounds like a lot of money, but that check is rarely a single agent’s to keep. They often have to split that payment with one, two or even three other parties(more on this later). The settlement is meant to end parts of this practice, but it is not yet clear how much agents will be able to charge for their services, though the change is likely to be more dramatic on the buyer end of the equation.
Making things even more complex, unless the same agent is representing both the buyer and the seller, the selling agent gives a portion of the commission to the buyer’s agent—generally in a 50-50 split. With a $25,000 commission, that would mean the listing agent would get $12,500 and the buyer’s agent $12,500.
Beyond that, there are further splits. Often, the agents will also have to share their commission with their broker—the leader of the brokerage firm they work for. These splits vary based on the company, but it often starts at 60-40 (with 60% for the agent and 40% for the broker) and goes up to 80-20 for more experienced agents.
If the agents in that same $25,000 commission scenario had 60-40 splits with their brokers, that’d mean the listing agent and selling agent would take home just $7,500 each.
“Buyers and sellers can be wary of the 5% commission rate, but their individual agent typically ends up only seeing 1.5% on each deal,” says Christa Kenin, an agent and attorney with real-estate firm Douglas Elliman in Connecticut.
To be clear: Not all real-estate brokerages operate this way (just most). National discount brokerage Redfin, for example, pays its agents a salary. Realty ONE Group, which has over 400 franchise offices, lets its agents keep their full commissions, though agents do pay fees to the company.
Can sellers negotiate real estate commissions?
With inflation and mortgage rates high, a 4% to 6% commission might seem pretty pricey—regardless of whose pocket it goes into. Fortunately, “all commissions are negotiable,” says Joe Rath, head of industry relations for real-estate brokerage Redfin.
If you’re a seller looking to negotiate a lower commission with an agent you’re considering, it is important to do so up front. Ask your agent to detail what their proposed commission entails—what services and value they’ll provide in exchange for their fee. You can then agree to remove or reduce certain services in exchange for a lower cut.
“Commissions can vary depending upon the level of service that an agent provides, such as marketing, social media, etc.,” says Bryson Taggart, an agent with Opendoor in Arizona. “If a client wants drone photography, videos and a 3-D printing of their home, that commission may come at a higher price than if they simply want it listed on the MLS.”
You may be able to ask for a lower commission depending on market conditions, too. If it’s a seller’s market and homes are selling at inflated prices and record speeds, you may have more room to negotiate than when buyers are harder to come by and selling a home takes more work.
“Consider the conditions of your current market,” Kriegstein says. “If it’s a hot market with little supply and a lot of demand, you can likely leverage your commission. However, if the market is a buyer’s market you may not want to do that, as other properties could be offering more enticing commissions.”
Can buyers negotiate?
Buyers may be able to negotiate fees with their agents, too, though for now, opportunities for this are rare since sellers typically pay the full commission. Once the new rules from NAR’s settlement go into effect, buyers should have much more negotiating power.
Until then, you might be more able to negotiate if your agent is also the listing agent on the home you’re buying or if you’re buying a For Sale By Owner, or FSBO, property. Some brokerages offer buyer’s commission rebates, typically in the form of closing credits, though the practice is banned in eight states.
Other options
Negotiating isn’t your only option. You can also look to alternative agents and brokerages for reduced fees, too. Discount brokerages such as Redfin and Clever charge just a 1.5% listing fee (versus the usual 2% to 3%), plus the buyer’s agent fee. Other brokerages, such as Homie and ListingSpark, operate on a flat-fee basis.
You also have the option to go agent-free altogether. According to the National Association of Realtors, about 10% of all home sales are FSBOs.
Just keep in mind: If you go this route, you’ll need to handle all aspects of the sale yourself. As Kuba Jewgieniew, CEO of Realty ONE Group, explains, “Realtors work incredibly hard, with the bulk of that work done behind the scenes—negotiating, researching, marketing, writing up contracts and more.”
This article was originally published by a www.wsj.com . Read the Original article here. .
