Understanding Real Estate Commissions

There is a widespread belief that agent commissions haven't changed over the years. It's not true. RealTrends has been tracking the average national real estate commission rate since the early 1990s. Per RealTrends data, average commission rates came down from high of 6.1% in 1991 to a low of 4.94% in 2020 and 2021. What's interesting is they soared in 2022, up to 5.32%. Just a quick note about the data: it reflects prior year averages. So the 2022 number reflects the average commission in the 2021 calendar year (an amazing year, no?). Also, the 2022 data includes only publicly traded companies; the prior years include non-publicly traded firms. Alright, alright. You are probably wondering: OK, cool, James. But where will commission averages be in the 2022 and 2023 calendar years? It's hard to say. As my colleague Tracey Velt noted, generally speaking a down market will result in reduced commissions. But super-low inventory skews it. Multiple offers sometimes mean fewer negotiated commissions. However, no matter whether it's a boom or bust market, real estate commissions are always negotiable. We have another interesting data set worth discussing. During the Sitzer/Burnett trial, Gary Keller showed the jury a couple slides with average commissions on the sell side and the buy side for KW agents between 2002 and 2019. On the sell side, commissions fluctuated from roughly 2% in 2002 to around 2.5% in 2010, before gradually climbing to 2.67% in 2019. The buy side, however, has much less fluctuation. After reaching 3% in 2008 and 2009, it fell to 2.72% in 2019. While it's true that in some individual markets the commission rates don't materially change a lot from year to year, I think it's important to remind people that there is no single, national average. As Gary Keller testified, "The 6% number is a mythical animal. As a national average it does not exist." Whether the drop from 6.1% to 4.94% represents enough of a decline to prove there is no conspiracy is a different conversation, and one we'll be exploring in the months and years to come. Check out the chart made by Will Robinson and share your thoughts with me 👇

The National Association of REALTORS® announced today that it has settled a federal antitrust case over commissions. Next up, perhaps: Full-throated price competition from buyers agents. “You’re going to see a buy-side price war by next year,” says Vishal Garg, CEO of mortgage company Better. Under the new system that NAR agreed to in settling the suit, when a home hits the market, listing agents no longer will specify how much a buyer's agent is paid. Instead, that fee will be negotiated separately between the buyer and the buyer's agent. Technically, real estate commissions always have been negotiable. Practically, though, real estate agents are more skilled at negotiating than their clients, and commissions have clustered in the range of 5 percent. Today's settlement sets the stage for buyer agents to aggressively market their fees. "Over time more agents will feel free to offer different types of compensation, and more consumers will comparison shop and negotiate commissions in a more transparent marketplace," says Steve Brobeck of the Consumer Federation of America. Garg says a new era of competition among buyer agents is coming soon. "In the best-case scenario, consumers are going to shop around for buy-side agents in the same way they shop around for mortgage lenders," he says. There are still many details to be worked out. If the buy-side agent no longer is paid from the listing commission, then that means the buyer is responsible to pay the buyer's agent -- a sum that averages about $10,000, based on a 2.5 percent commission and a $400,000 sale price. For now, buyers aren't allowed to roll that amount into their mortgage, although it's possible that the Federal Housing Finance Agency will change its rules to allow Fannie Mae and Freddie Mac mortgages to include commissions.

Over the last 50 years, U.S. home prices have outpaced inflation and income growth by a wide margin. Real estate commissions, however, have remained fixed between 5–6%, tied to sale price rather than the actual work involved. As home values soared, the cost of selling rose disproportionately. In 1970, a 6% commission on a median-priced home equaled roughly 10% of the median household’s annual income. In 2024, it’s over 31%. At the same time, technology has made virtually every aspect of the job more efficient. Search, scheduling, documentation, marketing, communication—all streamlined. The agent’s time input has decreased. The consumer’s share of the work has increased. The commission has stayed the same. The economics no longer make sense. And consumers are starting to notice.

🚨 Important MLS Changes Coming August 17th! 🚨 Attention residential real estate appraisers! Significant changes are coming to your local MLS on August 17th, and it's crucial to stay informed. While some details may vary from MLS to MLS, here's a quick rundown of what we're seeing here in Texas: Removal of Compensation Fields: 📣 Compensation fields will be removed from the MLS. 📣 Compensation details cannot be included or referenced in any MLS-related materials, including remarks, property descriptions, and showing instructions. 📣 Compensation offers can be communicated through other channels like social media, emails, texts, or even creative displays, but not through the MLS. 📣 Brokers can display compensation offers on their websites for their own listings. 📣 Violations of this rule will result in fines and possible suspension of MLS services. Written Agreement Required Before Showings: 📣 A signed, written agreement is required before showing a property, whether in-person or virtual. 📣 The agreement must disclose the amount or rate of any compensation the MLS participant will receive, ensuring it is objectively ascertainable and not open-ended. 📣 It should include a statement that compensation is negotiable and not set by law. 📣 Open houses hosted by the listing agent or their team do not require this agreement, but it is needed if the host shows other properties. 📣 Violations will incur fines and potential suspension of MLS services. To prepare for these changes, make sure to: 🔉 Visit your MLS's member portal for resources, toolkits, and FAQs. 🔉 Attend webinars and classes on necessary forms and agreements. 🔉 Contact your MLS QA team with any questions. Stay compliant and ensure a smooth transition with these new rules! #RealEstate #MLSUpdates #Appraisers #Compliance #IndustryChanges #RealEstateAppraisers

Did you know that The NAR settlement changes will significantly impact real estate transactions starting August 17, 2024: 1. Buyer representation agreements will be mandatory before touring homes, requiring clear disclosure of agent compensation and terms. 2. Offers of compensation through the MLS will be eliminated, necessitating alternative methods for buyer agent compensation. 3. Sellers will have more flexibility in deciding whether to offer compensation to buyer's agents. 4. Buyers may be responsible for paying their agents directly if sellers don't offer compensation, or they can negotiate for seller concessions. 5. All commissions will become fully negotiable, potentially leading to more competitive pricing for real estate services. 6. MLS platforms will remove broker compensation fields and prohibit seller agent offers of compensation to buyer brokers. 7. Increased transparency in agent compensation and services is expected, potentially leading to more informed decision-making by consumers. 8. The traditional 6% commission model will no longer be standard, encouraging more flexible commission structures. These changes aim to foster a more competitive and transparent real estate market, potentially affecting pricing, service offerings, and the overall dynamics of buying and selling 🏠 homes. Sources [1] NAR Settlement and How Real Estate Transactions Will Change https://lnkd.in/eZAKxuAZ

Referral fees and Disclosure requirements... Summer Gorlick wrote a very interesting and informative piece in Inman the other day on a seldom discussed topic (and practice) in the real estate Industry, the disclosure of referral fees to clients. The practice of referral fees is not without controversy. In the article, Summer, speaking as a Compliance expert, highlights the ambiguity surrounding the disclosure of referral fees to clients. She emphasizes that the critical question isn't merely about the obligation to disclose but also about understanding the broader implications of such practices. She encourages real estate professionals to delve deeper into the ethical and compliance aspects of referral fee activities, especially in an era pushing for greater transparency, understanding that legal requirements vary by state. In California, for example, real estate licensees must disclose all compensation, fees and profits received from a transaction to their clients. "While the law doesn’t explicitly mention referral fees, they unquestionably fall under this requirement. Any lingering doubt is resolved by the California Department of Real Estate, which has issued advisories clarifying that referral fees must be disclosed." In 2016, Summer co-authored a comprehensive piece on referral fee activities with former California Real Estate Commissioner Wayne Bell, which was published by the Department of Real Estate. That deep dive into the regulatory framework made one thing evident: California licensees are required to disclose all compensation, including referral fees. Nevertheless, eight years later, these disclosures remain the exception rather than the norm. Recent legal actions have further spotlighted the issue. For instance, the Consumer Financial Protection Bureau (CFPB) accused Rocket Homes and The Jason Mitchell Group of engaging in an illegal kickback scheme, alleging that they provided inducements to real estate brokerages to steer clients toward their mortgage services. Such cases underscore the importance of adhering to regulations like the Real Estate Settlement Procedures Act (RESPA), which prohibits kickbacks and mandates transparency in real estate transactions. Summer concludes that while referral fees offer a pathway for agents to expand their business and income, it's imperative to navigate this "twilight zone" with a keen understanding of both ethical considerations and legal obligations. As the industry evolves, professionals must critically assess their referral practices to ensure they align with the overarching goals of transparency and integrity. https://lnkd.in/dCg7tQum John Reilly Terri Murphy Summer Goralik

Real Estate Agent commissions are now officially lower, gone, transparent, or negotiable. I used to work in a large sales industry (advertising) that was disrupted like this, resulting in fewer workers in just a few years. There are many OBVIOUS massive changes that occur when a whole class of sales workers lose their commissions rapidly, but these are the INCONSPICUOUS things that happen gradually...then suddenly: 1) Changing the salespeople changes the product being sold. This is the most mind-bending idea: when you go from 2M salespeople to 1M there will be differences in the home products themselves. You know how most ads and sites online are crappy looking? You can trace sales commissions to that. 2) Home sales will divide into direct and indirect sales channels. DIRECT will be the remaining Agent 2.0s Home Concierge Managers who will be brainy and techy. But INDIRECT will grow a lot: all the homes under $400,000 transacted by hobby real agents today will be sold on an INDIRECT self-service Amazon-esque-Ai-Exchange-MLS that is everything from search to lending to concierge in a box. A river of erstwhile agent commissions will convert into (mostly hidden) fees for these platforms. 3) Listing and marketing homes will change so much with fewer human sellers that Real Estate marketing will go from 10 years behind every other industry to 5 years ahead of every industry. Don't believe me? Real Estate is so unencumbered by commoditized marketing vendors and complexity that they will hyperdrive into the consumer-centric AI future that you will see posts like "former CMO of Tesla becomes CMO of [RE co]". 4) The RE agent job description will uplevel dramatically, from being a bank teller to wealth manager. Both handle money, but only one is a fiduciary who you are glad makes A LOT more money than you. Gen Z will get graduate degrees in being a Real Estate Agent. 5) Many of the 2M agents and brokers will leave these jobs but stay in real estate. Doing what? I heard many production home builders are hiring them as salespeople. Agents decline, but RE salespeople do not, they just sell different housing products or have different titles. Co-living? Fractional? ADUs? Home Concierge? You get it... 6) Paradoxically, not much will change at all. People will sell homes, somehow. People will buy homes, however they can. People will probably buy fewer homes and rent more. Consumers will quickly grasp the new terms and conditions and tools (it's not that hard to figure out that you will negotiate a fee to a service provider just like an accountant or lawyer) and people will go about buying and selling homes. This will all be a big nothing burger for consumers mostly (even if service goes down 25% but fees drop 50%).

Realtors' Billion Dollar Secret Referral Fee Business Nearly every Realtor I know has either paid or received multiple concealed referral fees. Their clients rarely know about this betrayal. While concealed referral fees may be ok in other industries, they are probably a criminal act when done in a fiduciary capacity. It's self-dealing. You should fire any agent who is willing to pay or receive a referral fee without a full and timely disclosure (before they make or receive the referral). If they were willing to conceal this from you, imagine what else they are capable of doing to you. Secret referral fees are quietly inflating real estate costs for home buyers and sellers. When a Realtor tells you that they know someone who can help you buy or seller consider that the act of dropping a name may have just cost you $10,000 or more. If you are a high wealth individual, that name dropping could be costing you $50,000 or more. Many agents and firms maintain a license for the sole purpose of collecting these hidden fees. Many buyers and sellers think they are getting unbiased recommendations, but in reality, they may be pushed toward Realtors who pay the highest secret referral fee to agents. While the typical referral fee is 25%, I've seen them as high as 50%. Go ahead and try and negotiate a better fee with that agent who has this additional overhead... The problem? These fees undermine fiduciary duty, as agents should be acting in the best interests of their clients—not their own wallets. They distort the market, inflate Realtor fees, and are a horrible breach of fiduciary duty . What can consumers do? * Ask questions: “Are you receiving or paying a referral fee on this transaction?” * Shop around: Compare service providers to ensure you're getting the best deal. * Demand transparency: If an agent or brokerage is making money from a referral, they should disclose it in a timely manner and fully—not just in fine print. The real estate industry is changing. It’s time for true transparency and fair competition. What do you think? Have you experienced secret referral fees in real estate? Let’s discuss! #RealEstate #ConsumerProtection #ReferralFees #HomeBuying #HomeSelling #EthicsInRealEstate #TransparencyMatters

The problem in #RealEstate is NOT that agents are OVERPAID. NOR that #Commissions are TOO HIGH. But rather the LACK OF #TRANSPARENCY and #HIDDEN FEES unknowingly paid by the #Consumer to 3rd parties that offer NO value including: 💰 HIGH Brick & Mortar #Broker Splits (vs. innovative brokerage models) 💰 #Zillow or other lead generation sites (vs. an agent who doesn't pay for leads) 💰 Agent to Agent #Referrals (without a strategy that provides value to the consumer) 💰 #Relocation Companies (that use a homeowner's equity to offset the cost to relocate employees) Although a home seller THINKS they are paying a listing agent 2.5% or $12,500 to prepare, stage, market and negotiate in order to maximize their home price -- 30-50% of the commission paid from THEIR #Equity often goes to 3rd parties that offer Consumers NO VALUE when selling their home. But IF you know the questions to ask, you can find a listing agent who has built their business on providing excellent #CustomerService (not paying for leads) and who works at an agent-friendly brokerage that allows them to tailor commissions based on what the #Client needs (not what the brokerage needs to keep its lights on). When selling your home, make sure the COMMISSIONS you pay deliver the #SERVICES you need and #RESULTS you expect! #RealEstateStrategies #180Relocation #ReloTalk #DiscovertheDifference

The NAR settlement will take a 100-year-old real estate commission system and turn it on its head. Everyone’s wondering exactly how this will work. Here’s what we know: Moving forward, buyers will negotiate their commission with their agent upfront. This amount will no longer be negotiated between the seller and the listing agent, nor will it be automatically included in the listing agreement. Before I share my predictions on what else to expect, I want to say 3 things: • Buyer's agent services have never been free to the buyer. The commission has always been rolled into the price of the house. • The biggest obstacle to a buyer's ability to purchase a home is often the down payment, not the interest rate. • The NAR settlement does not change agency duties, roles, and responsibilities. The Intermediary Relationship (Texas law) remains intact. My 4 predictions are: 𝟏. 𝐁𝐮𝐲𝐞𝐫 𝐚𝐟𝐟𝐨𝐫𝐝𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐰𝐢𝐥𝐥 𝐬𝐡𝐚𝐩𝐞 𝐰𝐡𝐨 𝐩𝐚𝐲𝐬 𝐜𝐨𝐦𝐦𝐢𝐬𝐬𝐢𝐨𝐧 Buyers already have a TON of expenses at closing and affordability continues to be a challenge. Sellers will understand that buyers may not be able to pay their agent's commission in cash at closing. Therefore, most sellers will still agree to pay the buyer's agent commission… IF the price is right! 𝟐. 𝐋𝐢𝐬𝐭𝐢𝐧𝐠 𝐚𝐠𝐫𝐞𝐞𝐦𝐞𝐧𝐭𝐬 𝐰𝐢𝐥𝐥 𝐥𝐨𝐨𝐤 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 Listing agreements will no longer include a provision for the buyer's agent commission, as this amount will be unknown at the time of listing. Instead, the listing agreement will only outline the listing agent’s commission 𝟑. 𝐁𝐮𝐲𝐞𝐫𝐬 𝐰𝐢𝐥𝐥 𝐚𝐬𝐤 𝐬𝐞𝐥𝐥𝐞𝐫𝐬 𝐭𝐨 𝐜𝐨𝐯𝐞𝐫 𝐜𝐨𝐦𝐦𝐢𝐬𝐬𝐢𝐨𝐧 𝐜𝐨𝐬𝐭𝐬 𝐢𝐧 𝐭𝐡𝐞𝐢𝐫 𝐨𝐟𝐟𝐞𝐫𝐬 Buyer offers will include a provision requiring as part of the contract that the seller pay buyer broker’s commission in a specified amount. This amount will need to be disclosed to the seller since they can only pay the commission amount the buyer negotiated in their separate (upfront) agreement. 𝟒. 𝐁𝐮𝐲𝐞𝐫𝐬 𝐰𝐢𝐥𝐥 𝐛𝐞𝐜𝐨𝐦𝐞 𝐦𝐨𝐫𝐞 𝐬𝐞𝐧𝐬𝐢𝐭𝐢𝐯𝐞 𝐭𝐨 𝐭𝐡𝐞 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐜𝐨𝐦𝐦𝐢𝐬𝐬𝐢𝐨𝐧 𝐛𝐞𝐢𝐧𝐠 𝐭𝐢𝐞𝐝 𝐭𝐨 𝐩𝐫𝐢𝐜𝐞 If the seller offers to pay the buyer's agent more commission than what was negotiated in the buyer's representation agreement, the buyer’s representation agreement will need to be amended. However, as buyers become more aware that the commission is rolled into the price of the house, they may be less inclined to allow for a higher commission and instead ask for a concession for themselves. The bottom line: Everything in real estate is negotiable, including what seller's agents and buyer's agents get paid and whether the seller pays the buyer's agent commission. As real estate professionals, our services are more valuable than ever. We need to refine our value-add presentations, considering everything we do for our clients and the peace of mind we provide throughout the process. Change is here. Are you ready?