Real Estate Commission Changes

Real Estate Commission Changes…Things to Consider

I want to start off by saying the world needs real estate agents. There is no doubt about it. If you disagree you may not understand what a real estate agent really does. At least good ones. But like any industry we have bad agents. They may not be worth what they have been paid in the past. That is not all of us tho.

With the new big news in the real estate world that EVERYONE is talking about: The National Association of Realtors (NAR) has reached a settlement in a lawsuit that could shake up how real estate agents get paid. If you’re buying or selling a home, this is something you’ll want to pay attention to. It isn’t a huge change but there is enough of a change that you need to be aware of what is going on.

Traditional Commission Rates

For a long time, the standard commission rate (although there has never been a STANDARD rate there has been an understanding of a real estate agents value and this has been the case for well over 60 years… BUT there has never been a standard rate just what it costs for an agent to run their business and feed their family) has been between 4-6% of the home’s sale price. This fee is typically split between the seller’s agent and the buyer’s agent. However, this could be changing soon since we have an over reaching government that refuses to let the market sort things out. We had discount real agents for the last 50 years. Ones that sell for $500 flat fee or something crazy like that. That doesn’t even cover the cost of my professional photos. Those companies never made it because they had an inferior product and the market said they wanted a better product and will pay more for that better product.

What’s Changing?

The recent NAR settlement might reduce these commission rates to 3-4%. (this is most likely not going to be the case but it is a possibility) This reduction aims to foster more competition among agents, making it possible for newer agents to offer lower rates compared to more experienced ones. Stephen Brobeck from the Consumer Federation of America predicts a shift towards more varied rates, which could make the real estate market more competitive​.

Impact on Homebuyers and Sellers

  1. Savings for Consumers: Some “economists’ make a crazy claim this could lower commission rates could lead to significant savings for homebuyers and sellers. Experts estimate potential annual savings between $20 to $30 billion given the current number of home sales. This does not seem likely. Buyers will need to pay for services or go without representation.
  2. Increased Competition: With more variability in commission rates, agents might have to offer better rates or enhanced services to attract clients. This could benefit consumers by giving them more options and better service.
  3. Gradual Implementation: Don’t expect these changes to happen overnight. It could take three to four years for the full effects to be felt in the market. This gradual shift will allow both agents and consumers to adapt to the new landscape​.

Broader Market Implications

  • Negotiation Power: The buyer agent commission will now be part of the offer. Some think this will give consumers more power to negotiate commission rates, leading to potentially better deals. Unfortunately most of these regulations are written by people not on the ground in the battle. They are ignorant bureaucrats that think they know about everything and in reality know very little.
  • Service Quality: To remain competitive, agents may need to up their game, providing better and more personalized services.
  • Market Adjustments: The real estate market will go through a period of adjustment as these changes take hold, affecting how deals are made and services are offered.

Key Takeaways

  • Lower Commission Rates: Possible drop from 5-6% to 3-4%. (but not likely and that is only 1 or 2 percent per side of the transaction)
  • Consumer Savings: Potential for $20-$30 billion in annual savings.
  • Increased Competition: Agents may offer more competitive rates and better services. You will most likely see some agents leaving the business so competition may not really be all that great.
  • Gradual Change: Full impact expected in three to four years. (hopefully in that time we can get this a little more clear for the public and industry because right now no one knows what is going on)

We will continue to update you on real estate news and NAR announcements for the latest on these changes.

Please reach out with any questions


Orson Hill Realty

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