Emboldened by a hot property market, sellers push real-estate agents to lower commission fees

Emboldened by a hot property market, sellers push real-estate agents to lower commission fees

It’s a seller’s market. And that might be bad news for real-estate agents who represent home buyers.

A new report from real-estate brokerage company Redfin
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shows that buyers’ agent fees changing have dropped considerably. The average commission rate for these agents was 2.63% of the sales price of a home as of the three-month period ending Nov. 30, down from 2.69% a year earlier.

The commission rate was the lowest on record, according to Redfin. The company, which boasts about its own low fees for prospective home sellers, began tracking the compensation data in 2017.

Real-estate agents aren’t leaving empty-handed, of course. Home prices have increased so fast that it has offset the declining commission rate. In dollar terms, the average seller was paying a buyer’s agent $12,415; up from $11,609 in 2020.

Sellers are calling the shots

This fall in buyers’ agent fees is a reflection of sellers’ power, given that they’re the ones who pay these fees.

The inventory of homes for sale has hovered near record lows over the past year. This is largely a by-product of years of under-building following the Great Recession. Homes were buying built at a far slower pace than households were forming. So when a generation of millennials suddenly began reaching the phase in life where buying a home made sense, they were left competing for the scraps.

Sellers are well aware of this, and using it to their advantage. “Sellers know their home is a hot commodity and will likely attract multiple offers no matter what, so they’ve started offering the buyer’s agents a 2% or 2.5% fee instead of 3%,” Joe Hunt, Redfin’s market manager in Phoenix, said in the report.

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As Hunt put it, “why would you offer 3% when you know you could offer less, and sell your home for the same price?”

The real-estate industry is becoming more transparent

Another factor behind the dwindling commission rate that buyers’ agents charge is the growing transparency regarding these fees.

Historically, sellers could expect to pay 6% of the home’s price in commissions split between the buyers’ and sellers’ agents. That arrangement has come under fire in recent years. Multiple class-action lawsuits have been filed against Realtors’ groups, including the National Association of Realtors, arguing that the set-up is unfair to consumers. And the Department of Justice has begun investigating the issue.

“The lawsuits and DOJ investigation are not currently having a major influence on commission rates, but the industry is watching closely to see whether they could result in buyers becoming responsible for paying their own agents,” Redfin chief economist Daryl Fairweather said in the report. “If that happens, buyers will likely be much more eager to negotiate commissions.”

A recent study from the Consumer Federation of America suggested that Americans could save around $100 billion annually in the commissions paid to real-estate agents if the commission for the buyer and seller agents were untied. Much of these savings would come about due to lower home prices — sellers would feel less pressure to charge buyers a higher price for their property if they weren’t responsible for paying both agents.

The real-estate industry has taken steps to improve transparency around commissions. Notably, the National Association of Realtors issued a new policy in November that will require multiple listing-service platforms to let brokerages display the commissions for buyers’ agents. The change took effect at the beginning of the year.

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