As many sellers know, when it comes to commissions all offers of compensation are negotiable, and always have been. So why the settlement with NAR? In fact, NAR wanted to avoid litigation and protect its members from individual liability so that we could move on with business and keep helping people with their largest financial transaction of their life (in any cases, or at least the most personal one) so here are the main takeaways.
COMMISSION Truths
Despite what you may have heard, realtors don’t make 6% or 5% that number represents the commission split 50/50 between 2 brokers so it's closer to 3 or 2.5% (theoretically).
That amount gets further reduced to anywhere from 50% - 10% probably on average by 25% leaving the buyers agent with 1.875% commission.
That amount gets further reduced as it's a pre-tax number so upon receipt of the funds you need to squirrel away around 10%-24% (probably an average of 12%) so by the end of the year or end of quarter that leaves the buyers agent with around 1.656% per transaction. (And for buyers agents tax write offs are less than for sellers agents though many specialize on both sides).
But wait, if you pay a referral fee to another broker where the client came from at a rate of 25% to 35% that 1.875% will first be reduced by that amount and that's before taxes...
So you can see that agents really don't make that much money. What you see on million dollar listing is the elite elite of agents and regular people would not make much of a living with months and even sometimes a years of work with a client when walking away with 1.6% or 1.2% of a $1,000,000 purchase price.
Also, I don't know how you feel about working pro-bono, or on faith or contingency once in a while, however agents don't get paid until their buyers (or sellers) have their keys (or proceeds) in hand and that's with each job for the most part, and no matter how long you work with them how committed or unsure about the buying or selling decision the client is. The commission as a percentage should adjust for inflation and CPI since it moves along with home prices.
I think a big part of the misconception that real estate agents make so much more money and do so little work is based on what the consumer's expectation is of a look and behavior of professionalism and success. But nothing could be further from the truth. Many realtors come from backgrounds as educators and go their lives as unsung heroes helping working class people secure a happy and healthy home or helping countless sellers market their homes professionally in order to realize their long time built equity with every on time monthly payment.
Additionally and on another note, the DOJ has been pursuing their loss in federal court to "go further to lower how much realtors earn... " That to me seems unnecessarily cruel to attack anyone's pay and no less while singling out a diverse group of workers that save homeowners so much time and stress in this most important financial decision.
Needless to say there has been an explosion in headlines that mostly scandalize realtors as a professional across the board which has created a challenging environment for regular every day realtors to work in.
COMMISSION Rule Changes
Once the settlement is approved by a judge it would go into effect. That could take place in July of 2024. at that time:
Sellers can still offer a credit/concessions to the seller and buyer side of the transaction in the listing agreement but sellers cannot advertise the amount of commission on MLS
Buyers and buyer's agents will soon need to have a written agreement for a particular set of parameters before the first home that they see.
Sellers can offer a commission in the MLS and that may or may not be used to credit the amount of the buyers agent commission (out of closing costs) or it can be indicated to come out of the proceeds of the sellers side of the transaction (sellers's proceeds) through checking item 3G of the purchase agreement.
Competitiveness
Real estate is extremely competitive, it is one of the most competitive industries out there. With more agents getting licensed every year in this country and just around 7m homes being sold each year including just around a median 3000 transactions a year in the city of Oakland there is a healthy competitiveness in the marketplace competing for the business and commission rates have been pressure tested in this environment for some time.
Coupled Commissions and Current Comission Rates Inflating the Price of Homes?
Cutting commissions does not make homeownership more affordable it actually makes it less affordable for buyers who need every dollar they have to put towards their downpayment and closing costs, sewer lateral compliance and even sidewalk repairs in the city of Oakaland. It seems an undue burden to force them to pay out of pocket for commissions normally baked into the transaction. There are standard rates charged for many services which do not involve a conspiracy of collusion such as in medical, legal fields, psychology. With such a diverse landscape of realtors isn’t it good to know what the going rate is, or so I thought...
Why Sellers Should Offer a Commission
realtors save buyers and sellers so much time that it would take them to analyze the contract. The sales comps Select Vendors to Stage they’re home time everything perfectly when they have a full-time job of their own plus the amount of risk they take on by doing this themselves for the first time or second time when realtors do this every day and have systems in place and experience to afford errors, that could be incredibly costly and time consuming in the end it’s so worth it .
Plus, a first time buyer who couldn’t afford buyer representation and decides to go it alone, could end up purchasing a home without contingencies or lift them too early before conducting a full investigation failing to understand the full condition of a home and blame the seller when this could easily have been avoided with the help of a realtor. Agents save both parties so much time energy and lower risk by working with an experienced realtor. It may sound corny but this is a valuable service.