Have you ever felt that you remained with substantially less than expected after selling your home? Maybe you were paying too much for your agent? And don’t even mention homebuyers who are literally stripped of their nest egg and obliged to pay the mortgage for the rest of their lives! If you have undergone the same experience, we happily report that you aren’t the only one. Let’s explore whether buyers and sellers really pay inflated commissions for realtors!
A select group of Missouri home sellers raised their voices against the misleading and nontransparent commission-sharing rule and went to court. And they won! This is how the infamous Sitzer v. the National Association of Realtors class-action lawsuit made the headlines nationwide, presumably heralding a new age in real estate transactions and commissions. Several high-profile US real estate brokerages and the reputable NAR were found guilty of artificially inflating agents’ commissions.
Now, they must pay the plaintiffs about $1,8 billion in damages. The party found guilty appealed, and, according to analysts, the trial could go on for another two years. NAR’s main argument is that commissions are negotiable. Additionally, their role is essential in maintaining order in a chaotic real estate market.
The debate about whether sellers and buyers pay high commission fees for their expert local real estate agent is as old as the industry itself. By all means, you’ll find passionate arguments on both sides.
Off the bat, let’s have a look at how real estate commissions commonly work. In the United States, it’s standard for buyer and seller agents to split a commission fee. We’re looking at around five to six percent of the home’s sale price. The seller covers this fee, and the two agents involved divide it. The question arises: Is this percentage fair, or does it leave room for inflation? In order to give you a more accurate perspective, we must dive deep into real estate transactions first.
To market a home, most listing agents (also known as seller’s agents) use the Multiple Listing Service (MLS), a platform designed to connect property buyers, investors, and homeowners ready to sell their assets. Imagine a giant list of residential and commercial properties enlisted with detailed descriptions. MLSs are regionally targeted, and only licensed realtors can access them in exchange for a fee or monthly subscription.
The National Association of Realtors handbook states that sellers must pay the commission for any home on MLS for both their own and the buyer’s agent. This is the so-called commission-sharing rule or collective compensation system.
Let’s talk number, shall we? Suppose you sell your home for $400,000. The total commission will be six percent of the selling price, namely $24,000! In addition, the rules specify that the seller’s agent decides how much percentage will they give to the buyer’s agent.
This part of the collaboration is kept on the hush-hush. Unless the buyer and the seller ask. And many haven’t even acknowledged the need for this information until the NAR commission lawsuit has commenced. Ideally, the seller pays the buyer’s agent half their fee.
Therefore, once closing day comes, the seller and the buyer agent will split the $24,000 commission, meaning they both get $12,000.
The lawsuit claims that these NAR rules uphold realtors’ yields at the expense of buyers’ and sellers’ financial interests. However, we must explain common misconceptions. First, the buyer has no say in how much their agent’s commission will be. If they knew, they could negotiate the commission down. Think about it! If commissions were lower, the property price would also be more affordable.
Secondly, let’s examine the seller’s perspective! Their problem may seem more transparent. The NAR legislation forces the homeowner to pay for the buyer’s agent. In other words, sellers fund the other side out of their own profit! The class-action lawsuit revealed that keeping homebuyers out of the conversation about agent commissions reduces and effectively crushes competition. Moreover, this nontransparent aspect of house transactions will continue to keep commissions inflated.
Suppose you believe US realtors’ commissions are artificially boosted. Let’s explore how much commission agents make in various countries around the world! Note! Each country has adopted a particular approach, depending on the property’s type, market value, and brokerage’s rules.
Many real estate clients tend to oversimplify and underestimate their agents’ scope of work. Do they simply list, market, show, and sell you a home? Or is the situation more complicated than that? Are they worth their commissions? To form an educated opinion, let’s investigate the services they provide!
A buyer’s agent helps with property searches, which they organize based on a homebuyer’s budget, location preferences, economic perspectives, job market opportunities, schools, and local amenities. This takes immense market knowledge, experience, and fieldwork.
Secondly, they supply buyers with valuable market insights and the property’s future potential. Simultaneously, they can pinpoint the home’s defects that must be addressed before a thorough property investigation and appraisal.
Thirdly, they schedule viewings, which can be time-consuming if more than one party should be present at house showings. Then, they advise on the offer and negotiate to attain a more advantageous buying price. In a word, a buyer’s agent can help clients save money, time, and energy. Plus, they know the right people to turn to, such as financial advisors, contractors, and real estate attorneys.
A seller’s agent prepares your home to boost its value by recommending experts in various fields, such as contractors, painters, landscapers, professional stagers, etc. To create a positive and convincing impression on potential homebuyers, the seller’s agent carefully stages your home. Let’s not forget about the photoshoot session, either!
The listing and marketing come next on various online and offline platforms, such as MLS and social media. Then, they advise on the asking price based on real estate comps. Last but not least, a seller’s agent reviews all offers submitted by buyers and helps select the most favorable one. Paperwork can be a hassle without an experienced agent’s supervision!
It’s up to everyone to determine whether buyers and sellers are paying inflated commissions for their representative realtors. One thing is sure: their input is critical in a homebuying or selling process. Otherwise, clients would be exposed to financial or health risks.
Nonetheless, the question regarding agents’ commissions will persist. The answer is more nuanced than it first appears. As the real estate industry adapts, clients should remain sharp. Most of all, they must seek transparency and explore alternative fee structures to ensure they get the best value for their real estate investment. One such example is paying a buyer’s agent upfront for their services. The key lies in open communication and willingness to negotiate.