New rules could lower homebuying costs
Real estate agent commissions just got more competitive. See how homebuyers and sellers can benefit.
For decades, real estate agents for both homebuyers and sellers collected commissions through a fee—typically 5% to 6% of the home sales price—paid by the seller. “Buyer agents were paid the same, regardless of expertise, education or experience,” says Doug Miller, a Minnesota-based real estate attorney and executive director of Consumer Advocates in American Real Estate.
That practice is changing, thanks to a 2023 court ruling stating that the trade group representing most real estate agents can no longer set rules that allow sellers to compensate buyers’ agents.
Under a proposed settlement by the National Association of Realtors following the ruling, homebuyers and sellers will have a greater ability to negotiate commission rates with their agents, potentially reducing the cost of residential real estate transactions. Though buyers typically haven’t paid commissions in the past, they may pay them indirectly through higher house prices, some experts say. One study by economists at the Federal Reserve Bank of Richmond found that moving away from standard commissions could save homebuyers a collective $30 billion per year.
What could that mean for you? Both buyers and sellers may have more control over the amount they spend on agents and the level of service they receive from them. Keep these tips in mind.
- Selling your home? Consider commission as one factor in determining the best agent for you. In addition to asking agents about their experience selling similar homes, you’ll want to find out their commission rates and the types of services they provide. Then, you can use that information as ammo for negotiation before you select an agent.
- Buying a home? Remember that paying for an agent’s services is a cost you wouldn’t have had to come up with in the past. Consider looking for one that doesn’t get paid via commission. While that’s been the historic model, the shake-up in rules may mean that more agents start offering a flat fee or an hourly rate for specific services. If you’re planning on doing a lot of the legwork yourself, that type of arrangement could yield significant savings.
“Some homebuyers may choose not to use an agent at all and do it themselves or with the help of an attorney.” Miller says. “If a buyer can’t afford to pay their agent, it is a simple matter to ask for a credit from the seller to pay for this. The end result is that everyone will pay less in the future.”
An evolving process
The elimination of standard commissions is a big change for the residential real estate market. Since these rules are new, the market and how agents are paid may continue to evolve. However, in the long term, consumer advocates believe it will lead to more transparency and potential cost savings for both buyers and sellers. Given that home sales are often one of the biggest financial transactions a consumer makes in their lifetime, that could be a win-win.
Start today
- Read more: Renting vs. buying a home: What’s best for you?
- Learn more: Listen to our homeownership podcast.
- Take action: Calculate how much of a mortgage you can afford.
