🏡 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 recent $1.8 billion verdict in a lawsuit against industry trade group National Association of Realtors (NAR) found that the group, along with two large brokerages, conspired to restrict competition and keep commissions artificially high. Although the verdict is being appealed, the industry is bracing for seismic shifts in the way agents are paid.
According to several years of polling by Clever Real Estate, consumers would almost certainly 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’ll be 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 about their clients’ best interest.
- Nearly half of home sellers (48%) say that 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’s half of the commission at all.
- 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%) actually know that the average commission rate is about 6%.
- When informed that the average real estate commission is 5.5%, 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 a majority of buyers (53%) said it was a bad time to buy.
The reasons are mainly financial. Despite interest rate increases that were intended to cool the market, prices are still trending upward. The average home buyer in 2023 spent 23% more than the national average price and 31% more than the average price in 2022. Not surprisingly, a solid majority of recent buyers (58%) said they overpaid for their home.
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 had a serious impact on sellers’ ability to trust their agent. A majority of sellers (55%) — including 42% of those who used an agent — think agents care more about making a deal than about their clients’ 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 themselves, 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 commission. How much of a 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 be willing to sell their home for less than the market rate just 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 that the average commission rate is 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. What's more, 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 5.5%, a majority of 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 agent. 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%. Even before this court verdict, commission was trending downward.
For sellers intent on saving on commission, there are ways to get a discount. 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.
The Implications of the NAR Verdict
With the verdict being appealed, changes to the commission system aren’t imminent. The NAR believes the appeal will take several years. But if the verdict is upheld, big changes could be on the way.
U.S. sellers already pay quite a bit more commission than sellers in other countries. In the U.K. and Australia, commission is closer to 2%. A reduction in average commission down to that level would be a big win for sellers because they’d pocket more profit from their home sale.
Presumably, sellers would also no longer be responsible for paying the buyer’s agent’s commission. This change is trickier. If buyers suddenly have to pay their agent a 2-3% commission, many might stay out of the market because of affordability concerns. Fewer buyers means fewer offers, which could lead to declining home prices.
There’s a plausible future in which the American commission system blows up, commission and home prices both fall, and sellers end up basically where they started, pocketing a slightly higher percentage of a slightly lower home sale. Like most complex systems, the American real estate market is inclined to maintain equilibrium.
In the meantime, sellers can save on commission right now by using discount agent services like those offered by Clever Real Estate, which can cut the listing commission by nearly half. Similarly, home rebate programs like the ones Clever offers could be the wave of the future if buyers have to add a 3% commission on top of their dream home’s purchase price.
No matter how much the commission system changes, the market will adapt.
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