The real estate industry is witnessing one of its most significant transformations in recent history. In a landmark move, the National Association of Realtors (NAR) has settled an antitrust lawsuit with groups of home sellers, agreeing to abolish rules on commissions. While the current business model for selling and buying a home is being eliminated, it remains unclear how this will ultimately impact the cost of buying and selling a home. In this article, we’ll explore what this change could mean for financial negotiations in the real estate market.
What Percentage Does a Realtor Make on a Sale?
Previously, a real estate transaction typically involved a commission of 5-6% of the home’s selling price, split between the buyer’s and seller’s agents. When the buyer is unrepresented, the listing agent could walk away with the entire commission. While the NAR has always stressed that the commission fee is negotiable, many home sellers felt pressured into accepting the standard 5-6% commission to attract buyers. Under the new model, commission rates are no longer fixed and can vary widely based on negotiations between realtors and their clients.
Why are Commission Rates Changing for Realtors?
The anti-competitive rules in the real estate industry have been unsustainable for home sellers and buyers. For a homeowner to sell their home effectively, they would have to bow to the obligated 5-6% standard commission fee of the broker. Part of this commission fee was a condition of using multiple listing services (MLSs) — a centralized listings portal that provides a group of homes for sale in a geographic area. That 5-6% percent is much higher than the commission fees in many other countries, which hovers around 1-2%. Since home sellers had to bear the brunt of those high commission fees, splitting the fee among the seller and buyer agents, it artificially inflated housing prices. In turn, home buyers had to dig much deeper into their pockets to secure a new home. Having the commission fee controlled by the listing agent and home seller can create a potential conflict with the buyer’s agent because they have different objectives in a home sale negotiation. When commissions are subjected to more negotiation, the cost of buying and selling a home can be significantly lower, opening the door to a more sustainable real estate market.
The New Real Estate Commissions Law, Explained
Under the settlement, the NAR agreed to establish new rules. The changes are intended to create a competitive and transparent housing market. Several MLSs are NAR subsidiaries, which are often tied into commission fees. One critical change: Listing agents will no longer split their commission fee with buy-side agents on MLSs. In other words, agents cannot include their commission when a home seller’s property is posted on an MLS. However, listing and buying agents can negotiate a commission outside the MLS. Also, brokers are no longer required to subscribe to MLSs. Adding the fee has been seen as a way for brokers to push more expensive listings on customers. A buyer’s agent must now produce a written contract outlining any specific fees to the buyer. This greater transparency allows home buyers to know exactly what to expect before going through with the purchase of a new home.
What Does This Mean for Home Buyers?
For home buyers, the elimination of the mandatory 5-6% commission is likely to result in cost savings and a more personalized buying experience. Buyers now have the leverage to negotiate commission rates that align with their budget and the level of service they expect. It could also spark increased competition among realtors, who must differentiate themselves through superior service, competitive pricing, or innovative offerings. For instance, brokers may start advertising their commission fees. This increased transparency is another boon for buyers. With clearer disclosures, buyers can make more informed decisions about the cost-effectiveness of their real estate transactions and the value they receive from their agents.
Even though the NAR’s settlement did not offer a suggested fee, some agents may propose a $3,000 fee for selling a home or a much lower percentage rate than the traditional 5-6%. The good news for buyers is that they have much more flexibility when it comes to finding a buying agent with a reasonable commission fee.
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