The real estate industry has witnessed a significant shift following the National Association of Realtors’ (NAR) historic $418 million settlement in March 2024, which targeted the longstanding practice of sellers paying commissions for both themselves and buyers’ agents. This settlement aimed to make home selling more affordable for consumers, especially sellers, by restructuring how real estate commissions are handled.
Background on Commission Changes
Traditionally, sellers have paid a combined commission of approximately 5 to 6 percent of the home sale price, split between the listing agent and the buyer’s agent. This commission is often factored into the home’s selling price, representing a significant cost for sellers.
Under the new commission framework implemented in August 2024, buyers are now expected to pay their own agents directly, a change designed to reduce sellers’ costs. Theoretically, this would lead to sellers receiving more from their home sale or being able to list homes at lower prices, benefiting buyers.
How Agents Are Circumventing the Rules
Despite these well-intentioned reforms, real estate agents have found ways to work around the new structure. While Multiple Listing Services (MLS) no longer permit commission-sharing offers to be posted publicly, agents have been communicating privately to maintain traditional commission splits. This covert approach has effectively preserved much of the previous compensation model.
Consequently, the average real estate commission has only marginally declined—from 5.64% pre-reform to about 4.96% post-reform. This represents a far cry from the anticipated savings consumers were supposed to experience.
Impact on Sellers and Buyers
Many sellers continue to pay buyer agents’ commissions, often out of habit or lack of awareness about their new negotiating power. This inertia is slowing the market’s adaptation to the new rules, leading to limited financial relief for sellers.
Buyers, meanwhile, face uncertainty regarding agent fees. The direct payment requirement could discourage some buyers from seeking representation or lead to confusion about agent compensation structures.
Consumer Advocacy and Market Recommendations
Consumer advocacy groups like the Consumer Federation of America are urging both buyers and sellers to actively negotiate commission rates. They recommend that sellers leverage their ability to reduce agent fees and buyers seek agents willing to accept commissions of 2% or less.
Experts warn that without increased transparency and consumer education, traditional commission levels may persist, disadvantaging homebuyers and sellers alike.
Future of Real Estate Commissions
The real estate industry is at a crossroads. While technological platforms offering flat-fee or discounted brokerage services are emerging, entrenched practices among traditional agents create resistance to change.
Policy makers and industry stakeholders are watching these developments closely, considering whether further regulatory intervention may be needed to protect consumers and promote market fairness.