Will the Recent Realtor Settlement Finally Cut Agent Commissions?

In recent years, the landscape of real estate commissions has undergone significant scrutiny and reform, particularly following a landmark legal settlement involving the National Association of Realtors (NAR). Despite hopes for change, many sellers are finding that the traditional norms surrounding agent commissions remain deeply entrenched. This article delves into the current state of real estate commissions, the implications of the recent reforms, and what sellers and buyers can expect moving forward.

Last updated: 04 October 2023 (BST)

Key Takeaways

• The NAR settlement aimed to decouple commissions, but seller practices largely remain unchanged.
• Most buyers are still requesting sellers to cover their agent's fees, typically between 2.5% and 3%.
• Contracts requiring buyers to sign agreements regarding agent fees have not significantly reduced overall commission rates.
• Sellers often feel pressured to pay commissions to avoid jeopardising potential sales.
• Agents maintain that their fees are negotiable, but many prefer to stick to established rates.

Understanding Real Estate Commissions

Real estate commissions are fees paid to agents for facilitating property transactions, typically expressed as a percentage of the sale price. Traditionally, sellers have borne the cost of both their own agent's and the buyer's agent's fees, which can total up to 6% of the home sale price. This long-standing convention has come under fire, leading to legal challenges and proposed reforms aimed at creating more transparency and competition in the housing market.

The NAR Settlement and Its Implications

The NAR faced a significant lawsuit from a group of home sellers in Missouri who argued that the prevailing commission model inflated costs for buyers. Following a jury's decision in their favour, the NAR agreed to implement changes meant to decouple the commission structure. This included requiring buyers to sign a buyer-broker representation agreement, which outlines the agent's fee and stipulates the buyer's responsibility to pay if the seller opts out of covering it.

What Changed?

With these new regulations in place, it was anticipated that the real estate commission landscape would shift. Many industry observers expected that the decoupling of commissions would lead to reduced fees and encourage buyers to negotiate directly with their agents. However, the reality appears to be more complex.

Continuity of Commission Rates

Despite the theoretical changes, recent data reveals that the average buyer's agent commission in the second quarter of 2025 stood at 2.43%, virtually unchanged from the previous year. For a median-priced home in the Bay Area, valued at approximately £1.3 million, this translates to around £31,600 in commissions still being paid by sellers.

Pressure on Sellers

Even with the new rules, many sellers feel compelled to continue paying buyer's agents' fees. The buyer-broker agreements create a scenario where if a seller declines to cover the commission, the buyer may have to pay it out-of-pocket. This potential cost can deter buyers, particularly those already stretched thin by rising property prices and other associated costs of home buying.

The Role of Buyer-Broker Agreements

The introduction of buyer-broker agreements has added another layer of complexity to real estate transactions. While these contracts are intended to foster transparency, they also reinforce the expectation that sellers will cover buyer's agent fees. For many sellers, the fear of losing a potential buyer becomes a powerful motivator to conform to these expectations, even if they disagree with them.

Negotiating Commissions: A Double-Edged Sword

In theory, the new rules should empower buyers to negotiate their fees with agents, potentially leading to lower overall commission rates. However, the reality is that many agents stick to their established rates, viewing them as reflective of their value and expertise.

Buyer Leverage in Hot Markets

In competitive housing markets, some buyers may choose to cover their own commissions to make their offers more attractive to sellers. However, this is typically limited to buyers with significant financial resources. Most transactions still see the seller covering the buyer's agent fee, regardless of the market conditions.

Agents' Perspectives on Fees

Many agents express reluctance to lower their commissions, adhering to the belief that their services warrant the standard rates. Some brokers even exert pressure on their agents to maintain these rates, as they take a percentage of the commissions earned. This creates a culture where lowering fees could undermine agents' perceived value and the established norm within the industry.

Looking Ahead: The Future of Real Estate Commissions

As the real estate landscape continues to evolve, the interplay between regulations, buyer needs, and seller expectations will play a critical role in shaping commission structures. While the NAR's settlement was a step towards transparency and fairness, many agents and sellers still operate within the confines of traditional norms.

Potential for Change

Future reforms may still be necessary to create a more equitable system. The U.S. Department of Justice has raised concerns about the impact of the new rules, questioning whether they truly benefit buyers or restrict competition among brokers. The ongoing dialogue surrounding commission structures indicates that further changes could be on the horizon, particularly as the housing market continues to fluctuate.

Conclusion: A Complex Landscape

The current real estate commission structure reflects a complex interplay of tradition, regulation, and market dynamics. While reforms have been introduced, the reality on the ground shows that many sellers remain tethered to the established norms of commission payment. As both buyers and sellers navigate this landscape, understanding the nuances of commission structures and negotiations will be essential for making informed decisions in the real estate market.

FAQs

What is the typical commission for a buyer's agent?

The typical commission for a buyer's agent ranges from 2.5% to 3% of the home's sale price. However, this can vary based on the market and negotiation between parties.

Can sellers refuse to pay buyer's agent commissions?

Sellers can refuse to pay buyer's agent commissions, but doing so may deter potential buyers who may not be able to afford to cover the fee themselves.

How has the NAR settlement affected real estate commissions?

The NAR settlement aimed to decouple commissions, requiring buyers to sign agreements about agent fees. However, many sellers still pay these commissions as the practice remains entrenched.

Are real estate commissions negotiable?

Yes, real estate commissions are negotiable, and buyers can discuss this with their agents before finalising any agreements.

What should sellers consider when listing their home?

Sellers should consider the overall cost of commissions, the competitive landscape, and how their pricing strategy may impact potential buyers’ offers.