Selling a home doesn’t come for free -- at least if you use a real estate agent.
In most cases, sellers pay a commission of around 5% to 6% of the home price. Around half of this goes to the seller’s agent (the one listing the home), while the other half goes to the buyer’s agent.
If you do that math, that’s a pretty penny. On a $250,000 house, 6% amounts to a whopping $15,000. That’s money you could put toward your business or, even better, a down payment on your next property.
Fortunately, it seems those costly commissions are finally declining. What’s more? Conditions are primed for them to keep dropping, too.
Are you considering selling a property in the next few years? Here’s what you need to know.
Why commissions are dropping: DOJ vs. NAR
According to a new report from real estate brokerage Redfin (NASDAQ: RDFN), the average seller paid the buyer’s agent 2.7% last year -- down from 2.8% almost a decade ago. It’s a small dip, sure, but Redfin’s experts say it won’t be the only decline we see on this front.
That’s for two reasons: First, there’s the recent antitrust lawsuit filed by the Department of Justice against the National Association of Realtors. In the suit, DOJ alleged that charging sellers both for their agents’ commissions and those of the buyer’s agent was anticompetitive, ultimately amounting to inflated pricing and lower-quality service. The case was officially settled back in November, with NAR agreeing to some new, more pro-competition ground rules.
The biggest change is that member Realtors will now have to publicly disclose their commission splits. So when an agent lists a home, they’ll have to include the commission they’re offering the buyer’s agent in the listing. Additionally, buyer’s agents will no longer be allowed to market their services as "free" (a practice often used in the past) and will also need to disclose their commission split with any clients they take on.
This increased transparency will likely lead to more competition when it comes to agent commissions, and that should cut down on sellers’ out-of-pocket costs. As Daryl Fairweather, Redfin’s chief economist, put it, "When a homeowner can see that their neighbor offered a 2.5% buyer’s agent commission rate, it makes it much easier to justify offering a similar rate when they sell their home."
Reason No. 2: Less reliance on agents
Let’s face it: Most sellers don’t need an agent to bring buyers to the table these days. With housing inventory at historic lows and homebuying demand surging, many sellers know their homes will sell easily -- and at top dollar -- no matter who lists it. For this reason, they may be more apt to negotiate commissions and pay a smaller fee.
Here’s how Sylva Khayalian, a Redfin real estate agent in Los Angeles, explained it: "I’ve been talking with some of my sellers about offering no more than 2.5% given the lack of inventory. There’s such a huge shortage of houses for sale that most homes will attract a long line of eager buyers no matter what. As a result, many sellers feel they don’t need to compensate the buyer’s agent as much for that part of the process."
There’s also technology to think about. According to NAR, the majority of buyers search for homes online before ever contacting a real estate agent. And last year, a whopping 97% used the web to find their home. This self-reliance has likely increased in the last year, given the restrictions and health concerns created by the pandemic. As buyer’s agents become less critical, a reduction in their commission splits is a natural result.
The bottom line
If agent commissions decline even a small amount, that can be big savings for a home seller. On a $250,000 house, the difference between a 3% commission and 2.5% one is more than $1,200. On higher-priced properties, the savings are even bigger.
If you’re considering selling a house this year -- especially with an agent -- make sure you keep this in mind. Talk to your agent about reducing the commission they split with the buyer’s agent, and make sure you consider alternative options, too. Discount agents and iBuyers are also options.