It has long been the norm in real estate transactions for the buyer’s and seller’s agents to be paid with a commission fee — typically 5% to 6% of the house price — that was split between the two agents and paid by the seller. But in early 2024, the National Association of Realtors®, a real estate trade association, agreed to settle a group of lawsuits that challenged this commission structure for violating antitrust laws and contended that commissions were artificially inflated.
NAR will pay out $418 million in damages. But more importantly for homebuyers, the fallout could trigger big changes in how homebuyers work with real estate agents to make their purchase — and maybe even save buyers and sellers a little money. NAR Realtors handle the majority of sales in the U.S., so this settlement could have a significant impact on real estate transactions going forward.
How might real estate agent fees work in this new environment? If you plan to buy or sell a home, it’s important to understand. Let’s take a closer look at how homebuyers and sellers might be affected.
What’s Changing About Real Estate Commissions?
The NAR settlement, which was preliminarily approved by a judge in April 2024, means that as of August 2024, sellers’ agents will no longer be required to offer to share commissions with buyers’ agents. If a commission (paid by the seller) is compensating the seller’s agent but not the buyer’s agent, homebuyers will likely be responsible for paying their own agent.
This isn’t all bad news for buyers. Sellers might reduce home prices if their costs associated with paying a broker are lower. It’s also possible that buyers’ brokers will compete for customers by keeping their fees low. But it’s too soon to say what exactly will happen.
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What Does a Buyer’s Real Estate Agent Do?
If you’re a homebuyer, especially a first-time homebuyer, you may be wondering what services you would be paying for when you hire a real estate agent. Agents can perform a variety of services on behalf of their clients. If you’re buying a home, an agent can help you:
• Narrow your search to the most desirable properties for your budget
• View the homes in person or virtually
• Make an offer on a property
• Navigate the home inspection process
• Negotiate any contingencies you’d like to include in the home contract
• Prepare for closing
Who Pays the Agents’ Commissions?
It remains to be seen whether real estate agents will charge by the hour or bill customers a flat rate — or if some agents will continue to work on commission that is perhaps paid by the buyer.
Buyer’s real estate agents might begin to charge a fee (vs. a commission) for showing homes and shepherding clients through the purchase process. For buyers, this would add to the cost of a home purchase. Buyers have long suspected that sellers baked the commission fees into a property’s price, so that, in effect, buyers were already paying the commission. But while buyers could cover those baked-in costs out of their home mortgage loan, new fees paid by the buyer to the agent would come from the buyer’s pocket.
And they aren’t the only fees a buyer has to pay to finalize the purchase of a home. Closing costs can include:
• Attorney fees
• Title search and title insurance fees
• Credit check fees
• Upfront costs paid to cover homeowners insurance and/or property taxes
• Home mortgage loan origination fees
• Mortgage points, if you choose to purchase them
• Recording fees
Closing costs typically run between 3% and 6% of the home’s purchase price. So if you’re buying a $300,000 home, you might pay anywhere from $6,000 to $15,000 at closing, not including the down payment.
Closing costs are usually the buyer’s responsibility, but it’s not unusual for buyers to persuade sellers to share some expenses that are paid in advance.
All this may lead some buyers to consider shopping for a home without the help of an agent. If you’re thinking of going this route, be prepared to spend lots more time researching potential properties, reaching out to schedule viewings, and vigorously advocating for yourself if you’re in a seller’s market. And be ready to be your own best representative in negotiations.
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What Does a Seller’s Agent Commission Cover?
Real estate commissions compensate a seller’s agent for the work the agent puts into helping sell the home. What this specifically entails can depend on the agent you’re working with and your needs. But again, this often involves researching listings, preparing comparative analyses, guiding home viewings, and helping to negotiate offers.
Here is how the commission fee has typically worked in the past: Say a home sells for $366,000 (the average home price in Fresno, California) and the commission is 6%, or $21,960.
If the sellers owe $250,000 on the home’s mortgage, they’d be poised to pocket $116,000 in profit. But first they have to subtract $21,960 to cover the commission fee. It’s likely that the commission fees will be lower now that the commission is not shared between the buyer’s and seller’s agents. But exactly what percentage a seller’s commission fee will be is up in the air.
Commissions are paid out once the transaction is complete. This typically happens after the buyer and seller have signed their closing paperwork. The seller will receive a check for any profits due to them from the sale, while the agent receives a check for the commission. Exact amounts of commissions, like home sale prices, vary widely by state.
It’s worth noting that there are still other costs involved in selling a home. You may pay a separate fee for professional staging or photography to get it ready to list, for example.
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Flat Fee vs Real Estate Commission Fee
There are real estate brokerages that advertise listing services for a flat fee. Usually, the flat fee is very low and may only include a listing with photos on the MLS (the Multiple Listing Service, a list of available properties). Real estate agents who charge a flat fee usually don’t offer to schedule showings or manage the listing in other ways.
Are Real Estate Commissions Negotiable?
More than ever, thanks to the NAR settlement, real estate commission fees may be on the table for negotiations. A seller may be able to ask for a reduced commission if you’re working with an agent to sell multiple properties. The agent may be open to accepting a slightly lower fee per deal if there are multiple deals in play. This, of course, depends on how likely those properties are to sell at your desired price point.
As a buyer, how you might negotiate paying your agent in this new payment structure remains to be seen — and it will be up to you to start that conversation. Remember that you can also still negotiate a house price in other ways, such as by tailoring your offer price and asking the seller for help on closing costs.
Why Even Involve Agents?
You could buy a house without a Realtor® but having a professional’s help can be invaluable, especially if you’re a first-time homebuyer. (Realtors® are real estate agents who are members of the country’s largest trade association, the National Association of Realtors®. They subscribe to a strict code of ethics.)
A real estate agent or Realtor® can help you navigate the ins and outs of the homebuying process so that you can feel confident about your purchase.
Real estate agents are legally obligated to put their clients’ best interests first. They are trained to negotiate price and contingencies, handle legally binding documents, prepare and show properties for sale, and market homes through the MLS.
And if you’re thinking about selling your home on your own, it’s worth considering that homes for sale by owner usually sell for an average of $100,000 less than agent-assisted sales.
The Takeaway
Changes in the way that real estate agents are paid are underway, and while sellers will continue to pay their agents a commission, buyers may increasingly need to pay their agents themselves. Whether buyers come out ahead financially in this changed compensation structure remains to be seen. Bottom line? If you are in the market for a new home, make sure you discuss an agent’s fee structure and payment process before signing on.
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FAQ
Is commission and flat rate the same?
No. A flat rate is a specific rate negotiated for a certain service, while a commission-based fee is based on a price, such as the sale price of a home. For a seller, a flat rate typically covers only basic real estate agent services such as listing the property in a database.
What fee do most Realtors charge?
Historically, most real estate agents have worked on commission and would split an amount equal to 5%-6% of a home’s price, which was paid by the seller. Now, seller’s agents may still be paid on commission (albeit a smaller percentage) but buyer’s agents will increasingly be paid by the buyer. This means buyers will need to negotiate a fee with a real estate agent before agreeing to be represented by that agent in their home search. The amount of the fee will vary based on factors such as location, services provided, and time spent.
What is the difference between a flat fee and a fixed fee?
Yes, a flat fee and a fixed fee are the same when it comes to how a real estate agent is paid.
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