Home sellers can negotiate commissions with the real estate agents involved in their transactions. But recent research by the Consumer Federation of America (CFA) found that buyer agent commissions are uniform across numerous housing markets.
“The Relationship of Residential Real Estate Commission Rates to Industry Structure and Culture” study analyzed buyer agent commission rates on more than 10,000 home sales in 21 cities in the eastern half of the United States in 2021.
In eight of the cities, more than 80 percent of the rates were identical. In 14 cities, more than 88 percent of the rates ranged between 2.5 and 3 percent.
In every city analyzed except Brooklyn, at least 72 percent of the rates ranged between 2.5 and 3 percent. Typically, the total commission, including the fee paid to the buyer’s agent and the fee paid to the seller’s agent, ranged between 5 and 6 percent.
The report’s author, CFA senior fellow Stephen Brobeck, said he believes that one reason buyer’s agents receive similar compensation in so many markets is the traditional practice of the seller paying all commissions for real estate agents on both sides of the transaction at the settlement table.
Brobeck estimates that uncoupling buyer agent and listing agent commissions would result in price competition among buyer agents that could lower the commissions paid by consumers by $20 billion to $30 billion annually. Brobeck said he believes that if buyers could negotiate directly with their agents on the commission, buyer’s agents would be encouraged to compete on their price and services.
While buyers often think the seller pays all commissions, the funds for the commissions come from the buyer’s purchase of the home whether the buyers pay cash or their mortgage company provides the money at the settlement table. Fees for the services of real estate agents involved in the transaction are deducted from the seller’s proceeds from the sale.
According to the CFA report, if buyer’s agents were forced to compete, their commission rates probably would vary based on the amount of work they do, the sales price of the house, their experience or whether they are fiduciaries with loyalty to their clients or dual agents who are loyal to neither the seller nor the buyer.
Currently, listing agents and their sellers using local multiple listing services (MLS) must offer a fixed compensation to buyer agents. The National Association of Realtors recently changed its rules so that MLS systems and real estate brokerages can disclose the buyer’s agent commission on their websites.
If buyer’s agent and listing agent commissions were separated, buyers would be able to negotiate the fees directly with their agents, the CFA report concludes. This would spur competition and possibly lower home prices since the sellers would not be including buyer’s agents’ commissions in their prices.
The CFA recommends that mortgage companies and real estate industry representatives ensure that buyer’s agent commissions could be financed into the mortgage so that the costs would not be prohibitive for buyers.