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If you’ve ever bought or sold a house, you may have been surprised at the commission that was paid to the Realtors on the sale. In the U.S., commissions on home sales are typically 5% to 6% of the purchase price. But commissions on property sales in other countries are far less — sometimes half of what consumers pay in the U.S.
Why do Americans pay higher real estate commissions? Here’s what you need to know.
A Real Estate Transaction May Have Two Brokers
Any given real estate transaction in the U.S. may involve two brokers — one representing the seller and the other representing the buyer. The reasoning behind the high commission rate in the U.S. has typically been that the listing (seller’s) broker charges the seller 6% and splits the commission with the broker representing the buyer.
In other countries, it’s rare to have an agent representing the buyer, which keeps the commission lower.
Realtors in the U.S. Are Well Represented
Another factor leading to high real estate commissions in the U.S. is the National Association of Realtors trade association. While commissions are always negotiable, this powerful organization, to which most real estate agents belong, dictates that listing brokers who market their listings on the Multiple Listing Service must include an offer of compensation to cooperating brokers — i.e., buyers’ brokers. It does not dictate the amount or who must pay it, but sellers traditionally have footed the bill.
Things May Be Changing
The way buyers’ agents are compensated may be changing, which could reduce overall real estate commissions. On April 23, 2024, a $418 million settlement was approved between the National Association of Realtors and a group of home sellers who sued over commission rules. The agreement, if approved, would mean that listing brokers would no longer be allowed to include cooperating broker compensation in the MLS. Further, as many states already mandate, brokers who work with buyers would be required to have written contracts with them.
The thinking is that, if the rules are approved, sellers might be less likely to pay buyers’ brokers, which would leave buyers to pay for their own agents, if they choose. Because buyers’ resources are often limited, it’s possible that competition for their business would result in lower commissions for their agents.
The change is expected to become effective in September. While the agreement by itself may not bring U.S. real estate commissions into parity with the rest of the world, it may help reduce the high commissions Americans pay.
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