There’s a lot of uncertainty about how the recently proposed National Association of REALTORS® (NAR) settlement will affect the typical REALTOR percentage commission structure. Will sellers and buyers agents continue to be paid a percentage of the property’s price? Or will more flat-fee real estate brokerage companies appear?
Let’s compare flat fee vs. percentage-based commission models in real estate. But first, let’s look at the history of real estate commissions in the U.S.
Types of Real Estate Agent Fees
Before we dive into how real estate commissions may change, let’s first look at how real estate agents have been paid for many decades.
Since the 1950s, sellers have agreed to pay a specific percentage commission to their real estate agent as compensation for selling their homes. The sellers agent would then offer a share of the commission (usually half) to an agent who would find a buyer for the property. The buyers agent commission was often advertised in the agent-only section of an MLS.
1. Percentage-Based Commission
Real estate commissions are (and always have been) negotiable. However, the commission rate in the U.S. has hovered around 5-6% of the property sale price for decades. The typical REALTOR percentage is the same. (A REALTORⓇ is a real estate agent who is a member of the NAR.)
However, post-settlement, sellers agents can no longer use the agent-only section of the MLS to advertise a specific commission to buyers agents. And, because it is no longer a given that the seller will pay both agents’ commissions, some suspect that other compensation models will gain popularity.
Advantages of percentage-based commissions for buyers agents
In fluctuating market conditions, percentage-based commission structures ensure that agents are adequately compensated for their efforts, encouraging them to invest the necessary time and resources in each translation. In addition, as home prices continue to increase, so will your income as a real estate agent – as long as your commission percentage remains the same.
2. Flat Fees
To be clear, nothing may change in how real estate agents are compensated. But, there is a chance that more home sellers won’t cover the cost of the buyer’s agent commission. This means buyers could have to pay their agents out of pocket.
Here are some compensation models you may see more often in the industry.
Flat rate REALTOR fees: More agents will work for a flat fee for real estate services. For example, they may agree to represent a buyer for a flat fee instead of earning a commission based on how much the buyer spends on their property.
Per-hour fees: Some buyers agents may charge their clients by the hour based on need.
It’s important to understand that these compensation models are not new. According to the NAR Home Buyers and Sellers Generational Trends study from 2024, 76% of buyers who paid their agents directly used the percentage of the sales price method. However, four percent of buyers paid their agent a flat fee. (Amazingly, 19% of buyers who paid their agents didn’t know how their agents were compensated.)
Advantages of flat fee (or hourly) commissions for buyers agents
While the percentage-based model has worked for decades, more buyers may push back on this type of compensation. Buyers may be more likely to give their business to companies that will work for a flat fee for excellent services.
Difference Between Flat Fee vs. Percentage-Based Commission Models in Real Estate
As a real estate agent, you may be wondering about the best compensation method – especially in your role as a buyer agent. Here are the advantages of percentage-based commissions vs the flat fee model from a buyer’s perspective.
1. Simplicity
A flat fee compensation model for buyers agent seems very straightforward. After all, with this model, buyers know how much their real estate fees will be going into the transaction. However, the services a buyers agent provides for that flat fee may not be clear.
The percentage-based compensation model is dependent on the purchase price of the property. However, buyers agent services are more straightforward and all-inclusive with this traditional model.
2. Cost of service
For buyers, the cost of service may be lower with the flat fee or a la carte model. This may be especially true for high-end listings.
To maintain or increase total revenue, a buyer agent may need to handle a higher volume of transactions, as earnings per sale might be lower than the traditional model.
3. Personalized attention
Because buyers agents may need to handle a higher volume of transactions to earn the same amount of commission, they may not be able to provide the same level of personalized attention to their clients. Buyer agents who stick with the percentage commission model may decide to market themselves as full-service agents.
What won’t change is that real estate agents who offer top-tier services will continue to do well – no matter their compensation model. Learn how to be the best real estate agent you can be by taking courses with Colibri Real Estate School. Colibri will help you become a real estate agent, renew your real estate license, or upgrade your license. Check out our student reviews! We are proud of them!
Key Takeaways
- Real estate commissions have always been negotiable but have hovered between 5-6% for decades.
- Other commission models may become more popular after a ruling decreed that seller agents could no longer advertise buyers ‘ agents’ commissions on the agent-only portion of an MLS.
- A flat-fee structure may appeal to some buyers who are faced with paying their own buyers agent.
Source:
“2024 Home Buyers and Sellers Generational Trends Report.” National Association of REALTORS®. Accessed June 10, 2024. https://cdn.nar.realtor/sites/default/files/documents/2024-home-buyers-and-sellers-generational-trends-04-03-2024.pdf.
