A seismic change is underway in the real estate industry as Compass, a major brokerage firm, recently agreed to pay $57.5 million to settle antitrust claims, marking the first significant move in response to a lawsuit alleging collusion to inflate agent fees. This settlement follows the National Association of Realtors (NAR) agreeing to pay $418 million, further catalyzing a shift in the commission structure.

Starting in July 2024, pending federal court approval, a significant transformation will occur in the payment of real estate commissions. Home sellers will no longer bear the responsibility of paying both their agent and the buyer's agent. Instead, homebuyers seeking representation will need to compensate their agents separately. However, the exact implications of this change remain uncertain and subject to speculation.

Will buyers go it alone?

This alteration could potentially increase the overall cost of purchasing a home, as buyers may now need to cover the 2%+ commission fee for their agent. Alternatively, some buyers may opt to navigate the home-buying process independently, foregoing the use of an agent altogether.

Historically, realtor commissions in the US have hovered between 5-6% since the 1950s, with sellers typically bearing the entire financial burden. This shift may lead to a decrease in the prevalence of buyer agents, as evidenced by the low inclusion rates (<5%) of such agents in transactions in countries like Australia and the United Kingdom.

Advocates of the new commission structure argue that fees for buyers are likely to decrease substantially. Currently, US commission rates are notably higher than global averages, resulting in significant disparities in costs. For instance, on a $500,000 home sale, commissions in the US typically range between $25,000 to $30,000, whereas in the UK, they amount to roughly $6,500.

Experts predict that real estate commissions could plummet by 25% to 50%, according to TD Cowen Insights, creating opportunities for alternative selling models such as flat-fee and discount brokerages to gain traction in the market.

While the future for real estate brokers remains uncertain, one undeniable outcome is that selling a home will likely cost sellers less. However, the extent to which buyers will be willing to compensate agents in a market characterized by limited inventory remains to be seen, leaving room for further evolution in the industry's commission structure and practices.


Feature image: Photo by Tierra Mallorca on Unsplash