A recent verdict in a $1.8 billion lawsuit against the real estate trade group National Association of Realtors (NAR) has some analysts expecting a revolution in how the traditional commission system works.
But many working real estate agents don’t believe it will move the needle for buyers and sellers — and that the problem the lawsuit intended to address stems as much from a broken system as it stems from a lack of consumer education.
The verdict, which was handed down in a Missouri court in early November, concluded that NAR colluded with brokerages to keep commissions artificially high. If the verdict is upheld on appeal, as many expect, the biggest and most likely change is that sellers will likely no longer be expected to pay the commission of the buyer’s agent — an offering currently required to get a home listed on the MLS, the main directory of home listings in the U.S.
Since the typical real estate commission is currently around 6%, this change means sellers would potentially save about half that percentage on their home sale. This would bring the U.S. real estate commission system more in line with other countries, where the average commission is closer to 2%.
A Big Difference, or None at All?
Although this change could potentially save sellers thousands, many agents think that overthrowing the commission system could lead to unexpected consequences — or perhaps no changes at all.
Cindi Hagley, an agent based in California's Bay Area, thinks the market would quickly adapt.
“If (a) buyer falls in love with a home offering zero commission — meaning the buyer is responsible for paying their agent — I would negotiate a decrease in the price to cover that fee, or I would make paying the buyer’s agent commission part of the purchase offer,” Hagley said.
Brett Rosenthal, a Philadelphia-based agent, agreed with Hagley's sentiment.
“Buyers would negotiate low, knowing they may be paying their buyer agent a commission,” Rosenthal said. “And thus, sellers will get a similar price, or possibly even less.”
In other words, while sellers would no longer be responsible for paying 3% of the sale price to the buyer’s agent, their final sale price might be 3% lower, since the buyer is now incorporating the expense of their agent's commission into their offer.
In a buyer’s market, they may even demand that the seller pay the buyer’s agent commission, as buyers routinely ask for concessions or repairs when they have leverage.
Of course, sellers could always refuse this demand, but then they risk losing the buyer. Although the U.S. housing market currently favors sellers, that could change quickly.
How the Lawsuit Could Hurt Sellers in the Long Run
Many agents believe that changing the commission system will lead to fewer buyers on the market — a move that would dramatically dilute seller leverage. Rosenthal said that after post-lawsuit sellers try to sell without offering a buyer’s agent commission, they’ll quickly go back to the old way.
“Once sellers see (fewer) buyers coming to their home,” Rosenthal said, “I see it reverting back.”
This prediction gestures at how buyer’s agent commission actually works. While many anti-commission sellers seem to think they’re paying the buyer’s agent to negotiate against them, the reality is somewhat different. In practice, a buyer’s agent commission is an enticement for buyer’s agents to bring their clients to see a home.
The more buyer’s agents who are competing for that 3%, the more exposure a home gets, and the higher the eventual price could rise. Take that 3% enticement away, and sellers could suddenly find themselves with half-full open houses and offers below the listing price.
Plus, some potential buyers would stay out of the market simply because they couldn’t afford to pay an agent 3% on top of the purchase price.
Relief for Buyers
Could a deconstructed commission system lower home prices? After interest rates that were meant to cool the housing market, home prices in many areas remain close to all-time highs.
Even a small decline in home prices could be a boon to buyers struggling to afford a home.
Insight from real estate agents suggests this is going to depend heavily on the market.
“In the Bay Area where there is a shortage of homes, I do not feel that any changes to how commissions are paid would lower home prices," Hagley said. "In my area, it’s supply and demand.”
On the opposite coast, Philadelphia-based Rosenthal thinks buyers could see a small decline from lessened demand.
“My guess is that home prices would come down slightly,” Rosenthal said. “Because the buyer who won’t use an agent won’t get into these homes or find them like an agent would.”
It Might Not Be as Bad as Sellers Think
Home sellers hate paying real estate commissions.
Almost a third of sellers (31%) resent commission so much that they’d actually leave money on the table, and sell for less than the market rate, just to avoid paying agent commission. But a closer look reveals that much of that enmity might be misplaced.
Before the lawsuit, commissions were already on a steady decline. A 2023 survey of 625 agents found that the average U.S. commission sits at 5.49%, with listing agents receiving 2.83% on average, and buyer’s agents receiving 2.66%.
These figures are likely due to a market that’s given sellers the leverage to negotiate down their commission, as well as brokerages like Semya-Moya that offer a full-service agent experience at a discounted rate. Even without the court’s intercession, it’s probable commissions would’ve continued to drop.
What Americans Get Wrong About Commission
Complicating matters is the fact that many consumers simply don’t know how much commission they’re paying. About 62% of Americans mistakenly believe buyers typically pay their agent’s commission.
Even among active sellers, 42% don’t realize they’ll be expected to pay the buyer’s agent’s commission. Only 1 in 9 Americans knows that the average commission is about 6% of the home's price.
This all suggests that Americans didn’t hate the commission system — as much as they just didn’t understand it. After commission structure was explained to them, 69% of Americans said it seemed fair.
Still, if this recent verdict is upheld, big changes could be coming to the commission system — or not. Despite dramatic headlines, agents just don’t see substantial changes in the industry’s future.
“I feel that commissions will effectively remain the same,” Hagley said. “They may just be renamed or approached from a different angle.”
In the end, the U.S. housing market is a massive, complicated system, and it will take more than a change in commission to upend the status quo.
This article was produced by Semya-Moya and syndicated by Wealth of Geeks.