A year after a landmark legal settlement promised to reshape how real estate agents are paid, national commission rates remain largely unchanged. Initial drops in fees have rebounded, with current averages staying within historical norms, contrary to widespread expectations of significant consumer savings.
Key Takeaways
- Real estate commission rates have largely returned to pre-settlement levels.
- Average national commission rates are around 5.39%, similar to previous years.
- Most sellers continue to pay the buyer agent's commission.
- Buyer-agent contracts are becoming more common, which is a positive development.
- Flat fees or fee-for-service models have not gained significant traction.
Commission Rates Rebound After Initial Dip
The National Association of Realtors (NAR) settlement, reached twelve months ago, aimed to alter the payment structure for real estate agents. Many anticipated this would lead to a substantial reduction in commissions. However, recent research indicates a different outcome.
Immediately following the settlement, commission rates did see a sharp decrease. This initial plunge suggested a significant shift in the market. Yet, over the course of a full year, these rates have largely 'snapped back' to their previous levels.
Currently, national average sales fees stand at approximately 5.39%. This figure, while slightly lower than before the settlement, falls within the typical range of year-to-year fluctuations observed in the real estate market. The expected 'earthshaking' changes have not materialized.
Fact Check
- National average commission rate: 5.39%
- Initial post-settlement drop: Significant
- Current status: Rates have rebounded to historical norms
Challenges to Lowering Fees
Critics of the current system believed the NAR deal would drive down real estate fees. Steve Brobeck, a senior fellow at the Consumer Policy Center, expressed disappointment with the outcome. He noted that while the settlement intended to foster greater negotiation between buyers and sellers regarding buyer agent fees, some agents have found ways to circumvent these efforts.
Brobeck highlighted tactics used by agents to resist lower rates. Buyers attempting to negotiate often face arguments that sellers traditionally compensate buyer agents. Agents might also promise to write a 0% rate into the buyer-agent contract, effectively maintaining the status quo.
Another expectation was that the settlement might lead to differentiated commission rates based on an agent's experience. However, this has not occurred. Research found negligible differences in average commission rates between agents with over ten years of experience and those with less, for both buyer and listing agents.
Monetary Impact on Transactions
While percentage changes might seem small, their monetary impact on transactions is significant. For a newer buyer-side agent, the 0.47% commission rebound translates to an additional $1,930 per transaction on a median-priced home.
For an agent closing the median number of sales annually, this increase means over $23,000 in additional earnings. Sellers are also affected, paying an average of $1,027 more per deal, which adds up to an extra $12,324 annually for agents who list and sell the median number of houses.
"Buyer efforts to negotiate lower rates are typically met with a barrage of arguments that begin with the statement that sellers compensate buyer agents and end with a promise to write a 0% rate into the buyer-agent contract," Steve Brobeck stated.
Seller-Paid Commissions Remain Dominant
Before the settlement, sellers typically paid their agent, who then split the commission with the buyer's agent. The agreement aimed to separate these payments, allowing buyers to negotiate their share directly with their own agents.
However, recent data shows that this practice has not significantly changed. In the early weeks following the settlement, 71% of agents reported that sellers always paid the commission. A year later, this figure has risen to 78%.
While this is slightly below the 86% cooperative compensation seen pre-settlement, it represents a notable rebound toward the traditional model. This trend suggests that the spirit of the settlement, which intended to shift the burden of buyer agent compensation, has largely been sidestepped.
Background on the NAR Settlement
The National Association of Realtors (NAR) settlement introduced changes to rules governing how real estate agents are compensated. A key aspect was to decouple the buyer's agent commission from the seller's payment, theoretically allowing buyers to negotiate their agent's fees directly.
Practices That Maintain the Status Quo
Only 2% of surveyed agents indicated that buyers paid their own agents in all transactions over the past year. Furthermore, 95% of agents reported that half or more of their deals still involved cooperative compensation, where the seller's agent shares the commission with the buyer's agent.
Several practices contribute to this persistence of cooperative compensation:
- Some multiple listing services (MLS) not affiliated with NAR continue to allow listing agents to post the portion of their commission they are willing to share with a buyer's agent. The settlement explicitly forbids this practice.
- Agents are reportedly modifying buyer-agent contracts to secure additional compensation offered by a seller.
- Listing agents are sometimes retaining excess commissions intended for the buyer's agent. While this practice is technically permissible under the new rules, critics view it as anti-consumer behavior.
These methods appear common across various brokerage models, regions, and demographics, indicating a widespread adaptation to maintain established payment structures.
Positive Developments and Unfulfilled Expectations
Despite the challenges, one positive change has emerged. More buyers are now signing contracts with their agents that clearly outline payment terms. This development aligns with the settlement's goal of increased transparency and formal agreements, a step that NAR argued would be beneficial.
However, another significant expectation has not materialized. Many anticipated a shift towards flat fees or fee-for-service models, especially for buyer-side agents, following the settlement. A full year later, research shows no substantial movement in this direction.
The real estate market continues to operate largely under its long-standing commission-based structure, despite efforts to introduce more flexibility and negotiation into agent compensation.
