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Economy

Majority of Home Sellers Support Real Estate Commission Overhaul

The United States real estate industry is poised for some major changes — needed updates that a new survey by Clever Real Estate reports 94% of home sellers support. This renovation comes in the wake of recent settlements involving the National Association of Realtors (NAR). In a class action suit, home sellers argued they shouldn’t be compelled to pay the commission fees of the buyer’s real estate agent, as has typically been the case.

The NAR agreed to end this practice, among other concessions, a move supported by a wide margin among those planning to sell their homes in the next year. Based on typical commission rates, this could amount to $10,000 to $12,000 or more in savings for those selling a $420,800 home, the median nationwide sales price per the St. Louis Federal Reserve.

Two-thirds of those surveyed said the way commissions have traditionally been paid is fine. But 52% said it was unfair because they had to pay the buyer’s agent’s commission.

What Are Realtor Commission Fees?

The practice of paying realtor commission fees has existed for over a century in the United States. In the early 20th century, regional realtor boards set commission rates. Over time, those fees grew, with present-day agents splitting roughly 6% of a given home’s cost at closing.

Despite the practice’s longevity, many current homeowners weren’t familiar with the traditional system, says the survey. Only about one-third of the sellers surveyed knew their expected commission pay rate, with nearly half expecting to pay 7% or more. Meanwhile, roughly half of the sellers did not know they would be responsible for paying the buyer’s agent in addition to their own.

The processes have been no stranger to consumer criticism and pushback. Critics of the commission processes claim they artificially inflate prices, forcing buyers and sellers to bear the brunt of this burden. However, commission fee supporters argued that these fees compensated agents for their work and access to multiple listing services (MLS), a real estate database wherein brokers list properties.

However, the antitrust suit filed by the Justice Department opened up the data from these MLS systems to anyone with an internet connection. Popular real estate listing apps and sites help homeowners bypass the MLS and list their homes without an agent.

As a result of the NAR settlement, buyers will soon be responsible for figuring out how to compensate their agents. While commission fees have always been negotiable for the seller, buyers must now negotiate them with their agents rather than relying on the seller’s offer.

The Complete Cost of Commissions

Commissions remain a priority among sellers despite representing a minute percentage of a home sale. Nearly two-thirds of those surveyed said high commission costs impact when they would list their home, or whether they would list it at all.

During the market’s peak between 2020 and 2022, home prices soared as buyers eagerly sought more space amid lower interest rates and the pandemic-induced pressures to stay home. Prices peaked in May 2022, with the average American home listed for $447,000. The surge in price means sellers often paid between $22,350 and $26,820 in commission. This cost excludes any other fees or costs associated with their sale.

As mortgage interest rates increase, demand for homes cools. Buyers are finding fewer options in their price range, if any, and these commission changes could further slow the market. This would predominantly impact first-time buyers, as they could face thousands of dollars in commission costs historically covered by sellers. Americans currently buying and selling homes will likely feel a less immediate impact, as the potential cost of a buyer’s agent can be offset by commission savings when selling.

American families looking to cut commission costs by working without a realtor may lose more money than they save. About 37% of the sellers surveyed say they would accept an offer of 10% or more below market if they thought it would save them money on commissions. Instead of saving money, however, they may lose 4.5% or more of the income from their sale, based on typical commission rates.

Real Estate Agents: ‘What Now?’

While the long-term effects of these changes on the real estate industry are difficult to predict, analysts expect it could increase the number of homes on the market.

“With standard agent commission fees of 6 percent eliminated, sellers will have the option to list their homes for cheaper,” said Alex Thomas, a senior research analyst at John Burns Research & Consulting. “Reduced transaction fees on home sales should spur incrementally more listings.”

Though Thomas anticipates slightly lower commission rates for buyers and sellers who work with agents, he expects commission rates will cyclically change based on the market. That means when demand is high, and it’s easier to sell, commission rates would be lower, while they might be higher in markets or during times of the year when homes are more difficult to sell. Thomas also said he expects to see realtor volume shrink.

Homeowners anticipating listing their property should conduct thorough research when looking for an agent. In the study, over three-quarters of home sellers (77%) say commission rates will inform their hiring decisions.

“Sellers should focus on finding an agent that fits their needs and is worth their negotiated commission,” Thomas said. This means working with an agent who understands the local market, provides an honest outlook on what to expect, and can best represent their interests throughout the sale and negotiation process.

Laura Chapman | Wealth of Geeks

This article was produced by Media Decision and syndicated by Wealth of Geeks.

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