🏡 How Well Do Americans Know Commission? 🏡
Turns out, Americans don't know much about commission. Clever found that 66% of non-homeowners — and 42% of home sellers — mistakenly believe that buyers bear the burden of their agent's commission fees.
Home buyers and sellers are becoming increasingly fed up with the traditional 6% real estate commission model — and they might be on the verge of getting relief from a system that many contend is rigged to artificially inflate how much agents are paid.
A lawsuit in November 2023 against the National Association of Realtors (NAR) questioned the long-standing practice of sellers paying the commissions for both the seller's and buyer's agents. NAR has settled the lawsuit, agreeing to pay $418 million over four years, without admitting any wrongdoing.[1]
The settlement is expected to shift the buyer's agent commission cost from sellers to buyers, potentially reducing the average real estate commission rate and enabling direct negotiations over rates for specific services between buyers and agents.
The changes brought about by the settlement are expected to be implemented starting in mid-July 2024. However, it hasn't yet received official approval and could face delays or modifications if objections arise.
According to several years of polling by Clever Real Estate, consumers would welcome these changes. Today’s consumers view the present commission system as confusing and unfair, which has made it difficult for many to trust their real estate agent.
Key Insights on Commission Rates 💰
- 42% of sellers don’t realize they’re expected to pay the buyer’s agent’s commission.
- The No. 1 regret among 2022 and 2023 home sellers is that their realtor commission was too high.
- The percentage of respondents who cited this as their top regret surged 40% in just a year, from 20% in 2022 to 28% in 2023.
- 55% of sellers — including 42% who used an agent — think agents care more about making a deal than their clients’ best interest.
- Nearly half of home sellers (48%) say avoiding high realtor commission rates was a “very important” priority when selling their home.
- 42% of sellers say they’re less likely to work with an agent if they’re unwilling to negotiate commission.
- 55% of sellers say they shouldn’t be obligated to pay the buyer’s agent half of the commission.
- Nearly a third of homeowners (31%) would be willing to sell their home for less than the market rate just to avoid paying realtor commission.
- Just 1 in 9 Americans (11%) know that the average commission rate nationwide is close to 6%.
- When informed that the average real estate commission is 5.49%, however, 69% said it was fair.
In a Tough Market, Commission Is a Major Pain Point
Nearly every recent home buyer (93%) said that present market conditions impacted their home-buying experience, and most buyers (53%) said it was a bad time to buy.
The reasons are mainly financial. Despite interest rate increases intended to cool the market, prices are still trending upward, and home prices have risen more than 2x faster than income since 2000.[2]
The average home buyer in 2023 spent 23% more than the national average price and 31% more than the average price in 2022. Unsurprisingly, most recent buyers (58%) said they overpaid for their homes.
Commission is a big part of that dissatisfaction. The No. 1 regret among home sellers was that their realtor commission was too high. The percentage of respondents who cited this as their top regret surged 40% in just a year, from 20% in 2022 to 28% in 2023.
The feeling of being price-gouged has seriously impacted sellers’ ability to trust their agents. A majority of sellers (55%) — including 42% of those who used an agent — think agents care more about making a deal than about their client’s best interest — a perception that’s led many sellers to look for ways to cut commission or even forgo an agent entirely.
Nearly half of 2022 and 2023 home sellers (48%) say avoiding high realtor commission rates was a “very important” priority when selling their home, and 91% say it was an important priority. Among sellers who decided to sell their home without a realtor, 28% said they did it to save on commission, and 39% said they might have been more open to working with an agent if they were willing to take less commission.
The willingness to negotiate is important to sellers: 42% say they’re less likely to work with an agent if they’re unwilling to negotiate realtor fees. How much discount sellers are looking for is uncertain, but a majority think they should pay at least 50% less, and 55% of sellers say they shouldn’t be obligated to pay the buyer’s agent’s half of the commission at all.
Resentment about commission can run so deep that, at times, it verges on illogical. A 2022 survey found that nearly a third of homeowners (31%) would sell their home for less than the market rate to avoid paying realtor commission.
However, 72% of sellers who worked with an agent believe a good agent is worth every penny of their commission.
Most Buyers and Sellers Don’t Understand How Commission Works
One reason consumers hate the commission system is because they don’t really understand how it works. Typically, the seller pays commission for their listing agent and the buyer’s agent, but 62% of Americans think buyers pay their agent’s commission fees. That figure rises to 66% among non-homeowners.
Just 1 in 9 Americans (11%) know the average commission rate is close to 6%. This includes 14% of homeowners who have actually gone through the home-buying process, and only 7% of non-homeowners.
Many Americans expect to pay less in commission, with 51% underestimating how much they’ll pay in commission. Actual sellers are slightly more educated on the subject. About 46% of sellers know exactly how much commission they’ll have to shell out, while 34% overestimate how much they’ll pay. Moreover, 42% of current sellers don’t realize they’ll be expected to pay the buyer’s agent’s commission.
In the end, a lot of negative sentiment about real estate commission is a failure of education. When informed that the average real estate commission is 5.49%, most Americans (69%) said it was fair.
This knowledge deficit has trickle-down effects: 65% of Americans wrongly believe buyers can save money by not working with an agent, and the 71% of sellers who used an agent who charged 5% or more could’ve saved money by using a discount real estate broker. But knowing that would require them to know how much a conventional commission costs.
The Agent’s Perspective
A 2023 survey of 625 real estate agents revealed some interesting data points about commission from an agent’s perspective.
Although the conventional wisdom is that commission is 6%, the reality is that it’s fallen to 5.49%, with listing agents getting 2.83% on average, and buyer’s agents getting 2.66%.[3] Even before this court verdict, commission was trending downward.
There are ways to get a discount for sellers intent on saving on commission. Seventy-two percent of agents said they’d offer a discount to a seller who also intended to buy with them, and just under 70% said they’d give a repeat client a break.
On the other hand, agents tended to charge more than average for clients who wanted a premium marketing package or were selling a remote or hard-to-sell property.
Implications of the NAR Settlement
NAR's recent settlement includes a $418 million compensation over four years and introduces three major industry practice changes beginning in July 2024.
- Listing agents can no longer advertise buyer’s agent commission. The new rule prevents listing agents from listing the buyer's agent commission in the MLS, a departure from the current practice where these fees are typically predetermined. This move encourages buyers and their agents to negotiate fees directly, shifting away from sellers dictating the buyer's agent's compensation. The aim is to ensure buyer's agents align their fees with the value their clients provide.
- Buyer's agency agreements will be mandatory. Buyers' agents must now secure an agency agreement specifying services and fees before taking on clients. The move aims to increase transparency for buyers regarding the costs of representation.
- MLS access conditions. The settlement changes conditions for MLS access by eliminating the mandatory fees real estate agents currently pay. This could ease cost pressures on MLSes and Realtor Associations, leading to lower fees for consumers and agents.
The expectation is that the average commission rate for buyer's agents will decrease from 2.66% to 1.5% to 2%, reducing the overall national average commission rate to about 4.5%. A fee reduction is expected as buyer's agents compete for clients by offering better services and more competitive fees.
The settlement will likely intensify buyers' emphasis on scrutinizing and comparing agents, driving the market toward scenarios where buyers prioritize agents who offer competitive rates, superior service, and expertise. Agent must present clear upfront agreements detailing their fees and services.
This period of change is also likely to accelerate the decline of traditional brokerages. Agents will gravitate toward newer brokerages with lower cost structures, letting agents keep more of their commission and, therefore, giving them more room to lower their rates.
In the meantime, both sellers and buyers can save on commission right now:
- Sellers can leverage discount agent services like those offered by Clever Real Estate, which can cut the listing commission by nearly half.
- For buyers, home rebate programs like the ones Clever offers could be the wave of the future if buyers have to add a 2-3% commission on top of their dream home’s purchase price.
Regardless of future changes to the commission system, the market will adjust. Stay tuned to Clever for the latest updates.
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