Redfin (www.redfin.com), the technology-powered real estate brokerage, has published an in-depth analysis on real estate commissions, giving consumers access to data that has historically been unavailable to them. Redfin’s analysis found the typical U.S. home seller in 2020 paid the brokerage representing the buyer a commission equal to 2.7% of the sale price—down only slightly from 2.8% in 2012.
Redfin expects fees will likely decline in 2021 and beyond as data on agent commissions becomes widely available for the first time. Real estate websites are now allowed to publish commission rates, so sellers will be able to see what others are offering, helping them make more independent and informed decisions.
“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.
Earlier this month, Redfin began displaying the buyer’s agent commission for more than 700,000 home listings and plans to add more data as it becomes available. Redfin will continue to report on commission rates and how they change over time as part of its efforts to make the real estate industry more transparent for consumers.
How Do Commission Fees Work?
Most often in a home sale transaction, the seller pays the fees of both their agent and the buyer’s agent. While commission rates are negotiable and vary, U.S. sellers typically pay 5-6% of the final sale price, which is split between the seller’s agent and the buyer’s agent. The DOJ settlement only impacts buyer’s agent commissions, which are the focus of this report.
A Red-Hot Housing Market Is Already Prompting Some Sellers to Offer Lower Commissions
Today’s hot housing market is accelerating the decline in commissions. Demand for homes is sky-high, with thousands of Americans moving and taking advantage of record-low mortgage rates during the coronavirus pandemic. At the same time, there aren’t enough homes for sale, fueling fierce bidding wars. As a result, some sellers have realized that finding a buyer will be a cinch, regardless of the commission they offer to the buyer’s agent.
iBuyers Pave the Way for Lower Commissions
Homes are increasingly being sold by thrifty businesses like iBuyers instead of individual sellers’ agents. The term “iBuyer” (short for instant buyer) is used to describe a real estate company that purchases houses from homeowners in quick cash transactions, makes any necessary improvements to the homes, and then resells them.
When an iBuyer resells a home, it pays a commission to the buyer’s agent, just like an individual home seller does. The average commission rate paid by iBuyers dropped to 2.5% in 2020 from 2.8% in 2019 as these companies experimented with paying lower fees to trim costs.
In many of the top iBuyer markets last year, iBuyers paid lower commissions to buyers’ agents than individual sellers did. In Phoenix, iBuyers paid 2.6% on average, while individual sellers paid 2.8%. When the DOJ settlement goes into effect and sellers can see what other sellers—including iBuyers—are paying in commissions, many of them may opt to pay a lower fee as well.
Edited by Maryssa Gordon, Senior Editor, Price of Business Digital Network
