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Buying a house is hard enough — and whenever something huge changes, the degree of difficulty is kicked up a notch. Like mortgage rates. They go up; the hurdle rises. The supply of homes gets thinner. There goes that hurdle, rising higher again.
Then, another massive change: real estate agent fees. The rules changed in summer 2024, and something so confusing has gotten even more mind-bending. Here’s what you need to know.
Read more: How to buy a house in 13 steps
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In March 2024, the National Association of Realtors (NAR) settled antitrust lawsuits claiming the organization helped keep real estate agent fees high. The commission structure was a mystery to most home buyers and sellers. The changes, implemented in August 2024, were meant to add some transparency to the process.
Here’s what changed:
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Sellers used to pay both sides of the real estate agent fees: the seller’s agent fee and the buyer’s agent commission. Now, the seller is only responsible for paying their agent’s commission. A seller can offer to pay the buyer’s agent, but that fee concession cannot be advertised on a multiple listing service (MLS).
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The buyer must now negotiate their agent’s fee and sign a service agreement before touring a home. (This doesn’t include visiting an open house without an agent before signing with a Realtor.)
Yahoo Finance tip: NAR real estate agents are called Realtors, and the fee settlement applies to NAR members. If your real estate agent is not licensed as a Realtor, the fee stipulations may not apply to them. However, those real estate agents may or may not have access to MLSs in your area, which has been a primary real estate database.
Dig deeper: What the NAR settlement means for buyers and sellers
Proponents of restructuring real estate agent fees believed that reducing commissions would also lower overall home-buying costs. While it is still too early in the transition to know how the changes will impact costs over the long run, one academic study believes the opposite might happen: Home purchase costs will rise.
Gregor Matvos, a professor of finance at Northwestern University’s Kellogg School of Management, and his colleagues developed an analytical model of two real estate fee scenarios. One was the previous situation where the seller paid both the listing fee and the buyer agent’s commission. The other was the new process where the buyer and seller each paid their own agent fees.
The research model indicated that “reducing agent fees generally leads to higher home prices, as lower future transaction costs increase the value of housing as a durable asset.”
In other words, houses generally rise in value over time, and a lower cost to sell the home actually enhances that worth. In fact, the lower commissions generally benefit the seller (who used to pay all of the fees in a sale) more than the buyer (who now may share in the transaction costs).
Matvos said first-time home buyers may benefit the least because of higher home values and because they often have less money in savings to pay the additional real estate agent fee.
Learn more: Why are home prices so high?
Real estate agent fees, or commissions, have always been negotiable. But did most buyers and sellers know that? Not so much. We’re guessing it was mostly an industry secret. Now, you can definitely negotiate the fee, either as a percentage of commission based on the sale price of a house or as a flat fee.
Yahoo Finance tip: The buyer’s agent fee is an out-of-pocket expense for home buyers. It typically cannot be rolled into the home loan principal. Buyers pay this fee at closing.
Read more: Cash to close — What you’ll owe on closing day
Having somebody on your side in a complicated and expensive sales transaction can be a comfort if you’re a home buyer. A buyer’s agent is committed to acting in your best interest. When signing an agreement with an agent, you will want to learn what services can be expected.
Then, ask about the fee or commission. Let the agent explain their expectations. The contract has to specify an amount, whether zero dollars, a flat fee, a percentage, or an hourly rate.
If you’re the seller, your real estate agent will be a vital part of your pricing and marketing strategy. You want them motivated to do the job. Ask what fee they might accept and if they are willing to apply a portion to the buyer’s agent. Remember, traditionally the listing agent has basically split the commission with the buyer’s agent, so this isn’t anything new.
That incentive will likely pull in more prospective buyers, and while it cannot be advertised on MLSs, it can be promoted in many other ways. Your agent will undoubtedly have ideas on that.
Most importantly, talk to more than one prospective listing agent. Comparison shopping works.
Yahoo Finance tip: In some states, one real estate agent can represent both the buyer and seller. This is called dual agency. However, it can raise conflict-of-interest issues, and your best interests may not be represented.
Dig deeper: 7 strategies for reducing closing costs
Real estate agent fees and commissions vary by market. Yet, prevailing trends can serve as a general benchmark.
According to a survey of 734 agents partnering with Clever Real Estate, the overall average real estate total commission in September 2024 was 5.32%,. That total was split between the listing agent (2.74%) and the buyer’s agent (2.58%).
As additional confirmation, for homes closed in October 2024, buyer’s agent commissions were 2.34%, according to Redfin. So that compares favorably with the Clever data.
Of course, commission rates may be adjusted based on the home’s sale price. Higher-value homes might allow for lower percentage commissions.
Read more: How much does it cost to sell your house?
Historically, the home seller has paid the fees charged by the listing agent and the buyer’s agent. Now, the seller and the buyer are responsible for negotiating and paying their respective Realtor fees.
The Department of Veterans Affairs, which backs VA loans, says there are two main changes to be aware of: 1) In the past, VA borrowers could not pay buyer’s agent fees. Now they can. 2) Agreements with Realtors acting as a buyer’s agent must include specific fee and service details.
As noted above, the national average combined commission of buyer and seller agent fees totaled 5.32% in September 2024. So, commissions are easing down from the traditional 6% level, and the new rules triggered by the NAR settlement have been in effect only since August 2024. There is little consensus among industry analysts about how far fees will fall over time, with predictions ranging widely — from 20% to 50%.
This article was edited by Laura Grace Tarpley.