Much has been written about potential real estate commission changes following the proposed National Association of REALTORS® (NAR) lawsuit settlement. If you are interested in entering the real estate industry, you may wonder how this recent lawsuit may affect your ability to make a living helping clients buy and sell real estate. Here’s what you need to know about real estate commissions- as well as predictions of how commissions may change.
Related article: Understanding the NAR Lawsuit Settlement and Its Impact
What You Need to Know About Real Estate Commissions
Knowing the background of real estate commissions in the U.S. is helpful. Here’s what you need to know about how real estate commissions work.
1. Real estate commissions are (and have always been) negotiable.
The real estate commission percentage has always been negotiable but has hovered around 5-6% for decades. Until this point, sellers would pay their agent a 5-6% commission for selling their home. The sellers agent would then typically split this commission with the buyers agent. The buyers agent commission would be advertised on the agent-only part of an MLS (multiple listing service.)
Post-settlement, seller agents can no longer list the buyer agent compensation on the MLS. Even though sellers agents will no longer advertise buyers agent commissions on this platform, commissions will continue to be negotiable. The proposed lawsuit settlement has nothing to do with how much sellers and buyers will pay for services.
2. Commissions climb with rising home prices.
Commissions have always been negotiable and have varied by region throughout the decades. However, home prices continue to increase in almost every market in the U.S.
If commission structures change, real estate agents may get a smaller piece of the pie in terms of their percentage-based commission. However, the size of the pie is getting bigger because home prices are increasing.
3. Historically, companies offering discounted real estate services have not succeeded.
So-called experts predicted the demise of buyers agents when homebuyers were able to find properties they were interested in online. Then, companies like Purplebricks and Redfin attempted to gain market share by offering flat-fee rates or discounted commissions. Still – in this 2024 study produced by the NAR, it’s reported that 89% of home sellers in the U.S. used an agent or broker.
Predicted Changes in Real Estate Commissions after the NAR Lawsuit Settlement
So, what will happen to real estate commissions post-settlement? That remains to be seen. Here are some thoughts about the most common predictions.
Related content: What Real Estate Professionals Need to Know About the NAR Settlement
1. More buyer agents may offer alternative payment structures.
Some believe the NAR settlement will set the stage for buyers agents to aggressively lower their commission percentage, work for a flat fee, or work hourly. Buyers agents who are NAR members will be required to enter into written buyer agency agreements with their clients before providing brokerage services, so there will be more up-front discussions regarding real estate agents’ compensation.
2. The commission structure may not change.
There’s a chance that the decades-old commission structure won’t change. Buyers and sellers are used to the old commission structure and seem comfortable spending 5-6% for a smooth selling process.
3. Buyers agent commissions may be able to be rolled into a mortgage in the future.
Some first-time homebuyers would have difficulty coming up with a substantial amount of cash to pay their agent when putting money down on the loan and paying for moving expenses. For now, buyers aren’t allowed to roll buyers agent fees into their mortgage. However, according to NPR, a change in mortgage underwriting rules may allow this practice.
It will take time to see how commission rates may change due to the NAR lawsuit settlement. While some may be waiting to see if commissions will change, others are preparing to enter the industry by completing their pre-licensing education with Colibri Real Estate School. Earn your license and start building your client list today so you are ready for whatever changes the industry brings. Colibri Real Estate offers at-your-own-pace real estate courses for your state, and our licensing experts will guide you through your state’s real estate licensing process. Start your real estate journey today with Colibri.
Key Takeaways
- Real estate commissions have always been negotiable, typically around 5-6%. Despite changes in regulations regarding listing buyer agent compensation on MLS post-settlement, the ability to negotiate commissions remains intact. The settlement of the lawsuit does not directly affect the amount sellers and buyers pay for services.
- Commissions tend to rise with increasing home prices. While changes in commission structures might result in agents receiving a smaller percentage-based commission, the overall value of commissions is growing due to rising home prices, potentially offsetting any reduction in percentage.
- Despite predictions of the demise of traditional real estate models due to online platforms and discounted services, most home sellers in the U.S. still opt for agents or brokers. Traditional commission structures may persist, with buyers and sellers accustomed to the 5-6% model.
Sources:
“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.
Horsley, Scott. “If You Recently Sold Your Home, You Might Get Part of Your Realtor Fee Back.” NPR, March 22, 2024. https://www.npr.org/2024/03/22/1239486107/realtor-fee-commission-homes-for-sale.
