Data on real estate agent commissions is about to become entirely public for the first time in American history.
It's the result of an antitrust settlement between the National Association of Realtors (NAR) and the Department of Justice (DOJ), and industry pundits expect it will usher in a new era of pricing competition in housing.
In early February, Redfin announced it would display the buyer’s agent commission for more than 700,000 home listings. Now that will be standard practice industry-wide.
"Homebuyers will finally see how much money their agent stands to earn on any home for sale, letting them evaluate whether they're getting good value for their money," said Redfin CEO Glenn Kelman. "On the other side of the deal, people listing their home will find out what other sellers are paying buyers' agents, without having to take their agents' word for it. This information could usher in a new era of price competition that saves consumers billions of dollars in fees."
The NAR/DOJ agreement also forbids real estate agents from misrepresenting that buyer broker services are free.
Most homeowners don't fully comprehend how their agents are paid, found a 2019 survey commissioned by Redfin, which, more specifically, showed 61% of homebuyers did not understand commissions. "This leaves buyers unable to compare agent services and evaluate them on service and price," Redfin reported.
"In a typical home sale transaction, the seller pays the fees of both their agent and the buyer’s agent," according to the latest from Redfin data journalist Lily Katz. "The total commission is normally 5%–6%, with about half paid to the seller’s agent and half to the buyer’s agent."
The DOJ settlement only impacts buyer’s agent commissions, which are the focus of the latest Redfin report. Past research has indicated that price transparency across industries often leads to lower prices.
“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,” said Redfin Chief Economist Daryl Fairweather.
Technology and other factors have led to increasingly lower commissions for buyer's agents, as well, Katz wrote. In a red-hot seller's market, some have realized that finding a buyer will be a cinch, regardless of the commission they offer to the buyer’s agent, Katz noted.
“I’ve been talking with some of my sellers about offering no more than 2.5% given the lack of inventory,” Sylva Khayalian, a Redfin real estate agent in Los Angeles told Katz. “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.”