The commissions homesellers offer buyer’s agents are poised to drop due to the upcoming widespread public display of commissions and steady erosion from real estate companies that buy homes directly from private sellers online and then re-sell them, known as iBuyers, according to a new report from tech-focused real estate brokerage and iBuyer Redfin.
Earlier this month, Redfin began displaying buyer’s agent commissions for more than 700,000 real estate listings in the 65 markets where MLSs have allowed the data to be displayed. The brokerage began displaying those commissions in its home Seattle market in October 2019.
But soon, such commission displays will be ubiquitous due to a proposed settlement between the National Association of Realtors and the U.S Department of Justice. On Nov. 19, the DOJ filed an antitrust lawsuit against NAR alleging some of its rules are restraints on Realtor competition. In a proposed settlement filed at the same time as the lawsuit, NAR agreed to overturn a rule that previously prohibited the public display of commissions offered by listing brokers to buyer’s brokers for bringing a buyer to a sale, also called the selling office compensation (SOC).
According to Redfin, the typical U.S. homeseller in 2020 paid a 2.7 percent commission to the buyer broker, down slightly from 2.8 percent in 2012. The brokerage predicts NAR’s rule change –anticipated sometime before the end of the first quarter — will usher in “a new era of transparency and pricing competition in the housing industry” and likely lead to further commission drops in 2021 and beyond.
“Home sellers typically rely on their listing agents for guidance on what commission to offer the broker representing the buyer,” the report said. “As a result of the DOJ settlement, sellers will soon be able to see for themselves what the going rate is when they visit real estate websites, helping them make more independent and informed decisions.
“Research has indicated that price transparency across industries often leads to lower prices. Americans pay twice as much in real estate commissions as residents of other developed countries, but this may start to change once commission data becomes widely available to the general public.”
Because some sellers have already started paying lower commissions in the current buyer-rich, inventory-starved market and iBuyers are also paying lower commissions, homesellers will likely follow suit, according to Redfin.
Daryl Fairweather | Credit: Redfin
“When a homeowner can see that their neighbor offered a 2.5 percent buyer’s agent commission rate, it makes it much easier to justify offering a similar rate when they sell their home,” said Redfin Chief Economist Daryl Fairweather, in a statement.
Sylva Khayalian, a Redfin agent in Los Angeles, said she’s been talking with some sellers about offering no more than a 2.5 percent buyer broker commission.
“There’s such a huge shortage of houses for sale that most homes will attract a long line of eager buyers no matter what,” she said in a statement. “As a result, many sellers feel they don’t need to compensate the buyer’s agent as much for that part of the process.”
Given that a homeseller can save thousands by offering a 2.5 percent commissions versus a 3 percent commission, homebuyers may also benefit, according to Redfin.
“As an example, the owner of a $750,000 home could save $3,750 by paying the buyer’s agent 2.5 percent rather than 3 percent,” the report said. “In many cases, these savings will also be passed onto the buyer in the form of lower home prices; sellers typically factor the buyer’s agent commission into their listing price, so if they’re paying a lower commission, that may also mean they’re listing their home for less money.
“Additionally, lower commissions should expand the pool of homeowners who are willing to sell since high commissions make moving more expensive — a benefit for buyers who are grappling with an acute shortage of homes on the market.”
Commission transparency could also help buyers negotiate, according to Fairweather.
“When a buyer can see that their agent will get paid $10,000 if they purchase one home and $15,000 if they purchase a different home, it makes it easier for the buyer to ask their agent for a refund of a few thousand dollars if they opt for the home with the higher commission.”
According to Redfin, these commission changes could mean that buyer’s agents may have to have more in-depth conversations with clients about who pays them and how much. It could also mean that buyers ask for different options for how to pay their agents if they end up having to cover some of the fee, such as paying on an hourly basis or per service. Lenders may also start offering the choice to wrap agent fees into mortgages if buyers lack the funds to pay their own agent, Redfin said.
IBuyers pay less
According to Redfin, the average buyer broker commission rate iBuyers paid when they resold a home fell to 2.5 percent in 2020 from 2.8 percent in 2019. Such companies, including Redfin’s own iBuyer RedfinNow, have been experimenting with paying lower buyer’s agent commissions to cut down on costs. RedfinNow has offered 0.5 percent less that it has in the past on more than 70 percent of its new listings so far this year, according to RedfinNow Vice President Jason Aleem.
“So far, offering a lower commission has not impacted our ability to attract buyers and sell homes for top dollar,” Aleem said. “Paying lower commissions means we can make even stronger offers to homeowners who request a cash offer from RedfinNow. We’re excited to share this strategy with our brokerage clients, who can hopefully save a chunk of change when they sell their home with a local Redfin agent.”
Redfin anticipates that the lower commissions paid by iBuyers will put downward pressure on commissions overall, particularly in markets where iBuyer have more market share, such as Phoenix; Charlotte, North Carolina; Fort Worth, Texas; Raleigh, North Carolina; and Atlanta.
What iBuyers In Top iBuying Markets Paid In 2020 Versus What Individual Home Sellers Paid
| Average Commission iBuyer Paid to Buyer’s Agent When Selling a Home | Average Commission Individual Seller Paid to Buyer’s Agent When Selling a Home | |
| Phoenix | 2.6% | 2.8% |
| Raleigh | 2.4% | 2.5% |
| Atlanta | 2.9% | 3.0% |
| Fort Worth | 2.9% | 3.0% |
Source: Redfin
Homebuilders may also get in on this trend, according to Redfin. In 2020, homebuilders in the top 10 new-construction markets typically paid a buyer’s agent commission of 2.8 percent, down from about 3 percent historically, Redfin said.
“We are experiencing record-low numbers of homes for sale, so it’s likely that builders are offering agents lower commissions — especially in places where those builders are the only game in town,” said Connie Durnal, a Redfin agent in Dallas, in a statement. “It will be interesting to see if this trend persists if inventory makes a comeback.”
Inventory-dependent?
If inventory starts rising, is it possible that sellers will see what other sellers are offering and that will reinforce the status quo or even drive buyer’s agent commissions higher?
“When inventory increases one day, sellers will have more information to work with to determine what’s the right commission for their specific neighborhood and price point,” Fairweather said. “It makes sense that commissions, like prices, will fluctuate based on the competitiveness of the market. But that can only happen when there is transparency.
“I’m selling my home in Seattle right now. Personally, I didn’t set my commission based on the status quo, I looked at what the lowest buy side commissions other sellers were offering and whether it seemed to impact how well that home sold. And I think that’s what many sellers will do: look at the nearby commissions, set on the low side, and over time that will bring commissions down.”
Commission Summary By Metro Area
50 largest metros by number of home sales in 2020. Data* represents all homes sold in a given metro, including those sold by iBuyers and homebuilders.
| Metro Area | Average Commission Rate Sellers Offered to Buyers’ Agents (2020) | Share of Sellers Offering Commission of 3% or More to Buyers’ Agents (2012) | Share of Sellers Offering Commission of 3% or More to Buyers’ Agents (2020) |
| Anaheim, CA | 2.4% | 33.0% | 5.7% |
| Atlanta, GA | 3.0% | 89.3% | 92.3% |
| Austin, TX | 3.0% | 96.4% | 95.3% |
| Baltimore, MD | 2.5% | 33.0% | 7.1% |
| Boston, MA | 2.2% | 8.1% | 0.9% |
| Buffalo, NY | 2.9% | 93.4% | 80.7% |
| Camden, NJ | 2.8% | 25.0% | 55.6% |
| Chicago, IL | 2.4% | 19.9% | 1.9% |
| Columbus, OH | 3.0% | 93.4% | 94.5% |
| Dallas, TX | 3.0% | 95.0% | 95.4% |
| Dayton, OH | 3.0% | 95.9% | 96.1% |
| Denver, CO | 2.8% | 17.2% | 5.3% |
| Elgin, IL | 2.4% | 25.8% | 1.9% |
| Fort Lauderdale, FL | 2.8% | 86.7% | 68.1% |
| Fort Worth, TX | 3.0% | 94.5% | 92.3% |
| Frederick, MD | 2.5% | 47.5% | 12.2% |
| Grand Rapids, MI | 3.0% | 93.1% | 94.2% |
| Houston, TX | 3.0% | 94.3% | 94.5% |
| Indianapolis, IN | 3.0% | 89.5% | 83.4% |
| Kansas City, MO | 3.0% | 94.4% | 92.8% |
| Lakeland, FL | 2.6% | 57.0% | 32.0% |
| Little Rock, AR | 2.4% | 14.4% | 7.8% |
| Los Angeles, CA | 2.4% | 33.2% | 4.1% |
| Minneapolis, MN | 2.7% | 22.6% | 1.6% |
| Montgomery County, PA | 2.6% | 63.2% | 32.9% |
| Naples, FL | 2.9% | 84.1% | 67.7% |
| Nashville, TN | 3.0% | 94.6% | 91.9% |
| Nassau County, NY | 2.0% | 6.0% | 3.1% |
| New Brunswick, NJ | 2.4% | 24.7% | 7.8% |
| New York, NY | 2.3% | 23.2% | 15.3% |
| North Port, FL | 2.9% | 90.6% | 81.9% |
| Oakland, CA | 2.5% | 35.3% | 4.4% |
| Orlando, FL | 2.7% | 80.4% | 39.5% |
| Philadelphia, PA | 2.7% | 74.2% | 42.0% |
| Phoenix, AZ | 2.8% | 64.0% | 57.7% |
| Portland, OR | 2.4% | 16.4% | 1.0% |
| Raleigh, NC | 2.5% | 20.1% | 4.6% |
| Riverside, CA | 2.5% | 59.4% | 19.7% |
| Rochester, NY | 3.0% | 96.7% | 94.4% |
| Salisbury, MD | 2.6% | 51.8% | 27.6% |
| San Diego, CA | 2.5% | 33.9% | 4.1% |
| San Francisco, CA | 2.5% | 18.2% | 3.9% |
| San Jose, CA | 2.5% | 30.1% | 3.9% |
| Seattle, WA | 2.8% | 87.8% | 58.1% |
| St. Louis, MO | 2.7% | 35.8% | 5.8% |
| Tacoma, WA | 2.6% | 68.6% | 22.1% |
| Tampa, FL | 2.6% | 32.6% | 12.3% |
| Virginia Beach, VA | 2.9% | 91.0% | 90.6% |
| Washington, DC | 2.6% | 72.9% | 18.2% |
| West Palm Beach, FL | 2.7% | 85.3% | 50.1% |
| National—U.S.A. | 2.7% | 59.7% | 44.8% |
*Data filters out home-sale records with commissions of between 0.1% and 0.5% and home-sale records with commissions of more than 10%, which we consider outliers.
Source: Redfin
