Out of sight, out of mind: 1-in-4 home buyers don’t know how their real estate agent gets paid — and it could be costing them big time. What you need to know
Buying a home is the biggest financial decision many Americans ever make.
And yet with so much at stake, countless buyers are closing deals with next to no understanding of who’s paying what, and why.
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A recent survey of buyers by real estate firm Redfin found 28% had no clue who paid their agent and how that fee was determined, adding to a perceived fog of fees paid to seller’s and buyer’s agents. Traditionally, the seller foots the bill for both the seller's and buyer's agent, typically a combined 5% to 6% of the sale price.
But with a recent legal settlement putting new scrutiny on those agent fees — and potentially placing the onus of agent compensation directly on home buyers. Here’s what you need to know.
Why confusion reigns
Many American homeowners may not realize that the standard 5%-6% rate is a suggestion, not a rule. It can be negotiated, and the split between the buyer's and seller's agent is also flexible.
You can face an assortment of extra costs. If your agent brings you to a property listed by another agency, you may owe the listing agent’s brokerage a referral fee. Some brokerages even charge transaction fees on top of the commission to cover administrative costs.
Of course, this lack of standardization can make it difficult for home buyers to benchmark costs and understand the factors influencing the final fee. The best way to deal with this is by trying to address it head-on: ask your brokerage about any additional fees it might charge.
If your budget is tight, it may also be worth exploring options like flat fees or hourly rates, which can be more cost-effective for specific situations.
Finally, the traditional model, where the seller seemingly shoulders the financial burden, creates a knowledge gap for the buyer. Because they aren't directly paying the agent, home buyers might not prioritize understanding the breakdown of those fees. This can lead buyers into negotiations with unrealistic expectations or limited leverage when it comes to agent fees.
And this overall lack of transparency around the process can make it easy for bad actors to take advantage.
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An industry in transition
Earlier this spring, the National Association of Realtors resolved multiple lawsuits by agreeing to erase policies that many believe led to artificially inflated costs for selling their homes. The settlement addressed allegations that NAR and several large brokerages conspired to fix buyer's agent fees — resulting in home sellers essentially paying an inflated commission on both sides of the transaction.
Whether the responsibility for agent compensation ultimately falls on the buyer or the seller remains to be seen. But after this judgment, home sellers and buyers are likely to be more aware of agent fees and question the traditional commission model.
Fee structures might become more negotiable as buyers gain leverage, especially with the potential burden of paying their agent directly.
However it shakes out, the shift is an opportunity for a more transparent and competitive market. And empowered by knowledge, home buyers can have more productive conversations with their agents regarding fees.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
