Most homebuyers and sellers are familiar with the idea of paying a real estate agent’s commission. However, recent developments in the real estate world, including a high-profile settlement involving the National Association of Realtors, may soon alter the way these fees are structured. This settlement could result in more competitive commission rates and greater transparency, potentially changing the way real estate transactions work. Before diving into these shifts, let’s explore what the current standard commission is and how it works.
Real Estate Agent vs. REALTOR®
Before diving into commissions, it's important to understand the difference between a real estate agent and a REALTOR®. While both are licensed professionals involved in real estate transactions, a REALTOR® is a member of the National Association of Realtors (NAR) and must adhere to a strict code of ethics. This distinction signifies a higher level of professionalism and commitment to ethical conduct in the industry.
You may have seen NAR in the news lately as they have just settled several lawsuits that we will discuss later on in the article. The NAR lawsuit has changed the basic framework of real estate deals.
For the sake of this article, we’ll use the terms interchangeably, but just know that while all REALTORS® are real estate agents, not all real estate agents are REALTORS®.
What Are Real Estate Commissions?
Commission serves as the primary form of compensation for real estate professionals, including both agents and Realtors. It is a percentage of the property's sale price that is paid to the agent or agents involved in the transaction upon its successful completion. Commission rates are not fixed and can vary depending on the specific agreement between the agent and the client.
How Do Commission Splits Work Between Real Estate Agents and Brokers?
Real estate agents typically work under the guidance of a broker, and the commission earned from a transaction is often divided between the brokerage and the agent. The brokerage usually sets the agent-broker split on real estate commissions, but this is negotiable. Market type, brokerage size, and experience all have an impact on the split. Before a property sale, agents can negotiate commission percentages and splits.
The most common commission split in real estate teams is 50/50, but 60/40 and 70/30 splits have been seen before. A fixed commission split model ensures consistent commission sharing for each transaction.
What Are the Changes for Commissions With the NAR Lawsuit Settlement?
Starting on August 17, 2024, new rules will change how real estate agents are paid. This follows the NAR settlement which alleged that its compensation practices violated antitrust laws, reduced competition, and artificially inflated commission rates.
For buyers, the new rules will require them to sign contracts before they can see any homes. Buyer's agents are no longer paid commission by sellers, and compensation requests must be negotiated. The seller's offered buyer's agent commission is no longer listed in the MLS. MLS is a multiple listing service that offers a comprehensive database of for-sale homes exclusively accessible to industry professionals. To find out if a commission is being offered, agents now need to contact the listing agent.
This means that before visiting any home or property, buyers and their agents must directly negotiate compensation. The buyer will pay their agent directly if the seller does not give compensation to the buyer's agency. Although it was previously required in some states, all members of NAR must now comply with this requirement.
What Is the Average Realtor Commission?
Before the buyer's agent and the seller's agent were paid in full commission for their services. The NAR lawsuit resulted in a settlement on August 17, 2024, which includes advantageous improvements for sellers and buyers in agent-buyer interactions, with the seller's responsibility for paying buyers' brokers.
The current national average for realtor commissions is 5.49%. The traditional real estate commission model, in which sellers pay their own agent and buyer's fees, generally 5% to 6% of the home's sale price, is totally thrown out by the case settlement. Going forward, the average commission rate will, no doubt, look very different. The potential elimination of buyer's agent fees for home sellers could increase competition among buyer-side brokers and will probably mean a more flexible fee negotiation.
How Can I Become a Real Estate Agent?
There are many different factors that can affect how much an agent is paid. An agent who only works part-time, for instance, might make significantly less, while an agent who dedicates more time to their job might make more than the average person.
Before becoming a realtor, you’ll need to pass your real estate exam. Our online prep courses can help prepare you for the national portion of the exam and highlights important topics that you’ll need to know in order to ace your test. If you’re an already licensed agent who is looking to stay up to date, definitely check out our courses for continuing your real estate education. Head over to our website and sign up for one of VanEd’s online courses today!
Written and Published by: VanEd
