Real estate commissions have survived the rise of the Internet and decades of attacks from disruption-minded discounters. But a flood of legal challenges to the existing brokerage model poses a new threat to the status quo.
An industry-shaking lawsuit making its way through the federal court system could upend the long-established way of paying commissions — namely, the custom of home sellers footing the bill for both their own agent and their buyer’s. This typically totals 5 to 6 percent of the home’s sale price, taking away a hefty chunk of the seller’s proceeds. In October 2023, a federal jury in Missouri found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions.
How might real estate commissions change?
It’s unclear exactly how or when that verdict will affect commissions, but the case’s price tag alone — $1.8 billion in damages, with the potential of billions more — is roiling the industry. Some predict big changes: One possibility is that home sellers will no longer pay both the listing agent and the buyer’s agent, so homebuyers who want representation might have to pay their own agents separately.
“The Missouri verdict and other court cases may lead to a revolution in our industry, not just reform,” Glenn Kelman, CEO of brokerage firm Redfin, told investors in a recent earnings call.
“The bulwark is falling apart,” said Brad Case, a housing economist at Middleburg Communities who has also worked for mortgage giant Fannie Mae and the Federal Reserve. “The Realtors have held this situation together for 100 years, but it’s not tenable for the long term.”
Some see the federal verdict as a sign that the real estate industry finally will have to give in to pressures for discounts. Others say it will be years before the verdict will translate to savings for homebuyers or sellers. Stephen Brobeck, senior fellow at the Consumer Federation of America, expects commissions will ultimately fall below 4 percent, maybe even to 3 percent. But he doesn’t see that happening anytime soon.
“Any change is going to happen slowly,” Brobeck said. “The old guard is going to try to keep the old rates.”
How much do commissions cost?
If a homeowner sells a property for $400,000, about average for existing homes in the United States, a 5 percent commission amounts to $20,000. That amount is then split between the seller’s own agent and their buyer’s agent (which hardly matters to the seller, who still has to pay the full amount regardless).
Long ago, 6 percent was the going rate for real estate commissions; 3 percent to each agent. But after decades of competition and regulatory scrutiny, the typical commission now is slightly less than 5 percent, according to data from Anywhere Real Estate, the parent of Coldwell Banker, Century 21 and other large real estate brands. In its filings with securities regulators, publicly traded Anywhere reports that its average commission “side” — half the commission — is currently about 2.4 percent.
While commissions briefly rose during the Great Recession and again in 2023, rates in general have been falling steadily for decades. For Realtors, this decline in commission rates has been offset by rising home prices: They’re getting a smaller piece of the pie in terms of their percentage-based fee, but the pie is getting bigger.
About the NAR lawsuit
In the case that went to trial in 2023, Missouri home sellers alleged antitrust violations by NAR and four major brokerages: Keller Williams, Anywhere, RE/MAX and HomeServices of America. Anywhere and RE/MAX settled before trial — paying $83.5 million and $55 million in damages, respectively — while the other defendants opted to take their chances in the courtroom.
The jury ruled against the industry, and a judge ordered NAR and the two remaining brokerage firms to pay $1.8 billion in damages to home sellers. That figure could eventually balloon to $5 billion.
Keller Williams has since settled as well, for $70 million, while NAR and the remaining defendant are appealing. But if the verdict stands, it could mean that a home seller would no longer be required to pay the agent who represents their buyer.
Keep in mind:
If the verdict stands, home sellers might no longer be required to pay the agents who represents their buyers.
The success of the Missouri suit, filed on behalf of hundreds of thousands of home sellers in that state, has spawned similar legal complaints in Texas, Florida, Pennsylvania and elsewhere. However, it could be years before those suits are settled and the fallout comes into focus.
Other dramas
NAR is also facing other headwinds in addition to the antitrust lawsuit and related cases. A sexual harassment scandal led to the resignation of the organization’s then-president in 2023, and the organization’s next president and longtime CEO have since stepped down as well.
All the drama has created unease and unrest in the ranks. Redfin cut ties with the trade group, requiring many of its brokers and agents to cancel their memberships, and other brokerages have followed suit. In addition, two influential real estate agents have announced the launch of a competing trade group, known as the American Real Estate Association (AREA).
One of the new group’s cofounders, Jason Haber — a broker/agent at Compass in New York City and an outspoken NAR critic — described AREA as an alternative, not a replacement. “We’re not trying to replace NAR. We’re not trying to replicate NAR,” he said. “They have a 108-year head start.”
A ‘perfectly competitive’ industry?
The residential real estate industry long has presented a dichotomy. On the one hand, it has essentially controlled the marketing of properties for sale through a nationwide network of multiple listing services (MLSs). That reality has led to grumblings about collusion and price-fixing, along with scrutiny from the U.S. Department of Justice.
On the other hand, real estate sales is a relatively easy business to get into, as evidenced by NAR’s membership rolls of more than 1.5 million agents. To earn a real estate license, an agent typically needs to take a couple of classes and pass a state exam. No college degree is required, and the costs of entry are modest.
Lawrence Yun, NAR’s chief economist, points to these low barriers to entry as evidence that competition is alive and well: “Real estate is a perfectly competitive industry,” Yun said during the organization’s annual conference in November.
Brobeck, the consumer advocate, disagrees with that assessment. “It’s not a free market right now,” he said. “There’s intense competition for clients. But there’s no competition on rates. In a normal marketplace, you compete based on marketing, but also on the price you charge.”
Meanwhile, the industry mantra long has held that commissions are negotiable, suggesting that sellers and buyers call the shots when it comes to how much they pay agents. In practice, though, consumers buy or sell a home only once every 5 to 10 years, and many aren’t knowledgeable enough about the process to successfully negotiate the rate down.
“Consumers are at a disadvantage,” Brobeck said. “They buy and sell homes infrequently, and they’re mostly concerned about sale price and timing.”
Historically, discounters have not succeeded
For decades, detractors have predicted the demise of real estate commissions. These fees were sure to go the way of stockbrokerage commissions and travel agency fees, the naysayers said. Instead, real estate commissions have proven stubbornly resilient.
It’s not for a lack of trying. Many disruptors have seen commissions as a problem to be solved, but most have fallen short of reshaping the industry.
In the early 2000s, for instance, a splashy discounter known as YourHomeDirect (and later Foxtons) offered 2 percent commissions in New York and New Jersey. But after advertising heavily and gaining market share, it ultimately collapsed.
A decade later, London-based Purplebricks pushed into the U.S., wooing sellers with a flat fee of $3,200. It, too, overestimated demand and pulled out of the U.S. market in 2019.
One high-profile discounter, Seattle-based Redfin, has achieved greater staying power. It launched as a cheaper alternative to traditional brokers and touted listing fees of just 1 percent, although it has since shifted to focusing on 1.5 percent listing fees.
How home sellers can save on commission
If you’re not keen on paying 5 or 6 percent of your home’s sale price, here are some alternative options:
- Go it alone: Sell your home without an agent in a “for sale by owner” transaction. Between July 2022 and June 2023, 7 percent of home sales were sold by owners without the help of an agent, according to NAR data. But selling without professional help is a lot of work to do on your own, and it only saves you one agent’s commission — you’ll still have to pay your buyer’s agent.
- Negotiate: If you don’t want to go it alone, ask agents about their commission rates upfront and compare the terms of each person you talk to. If you think the fee is too high, see if they’re willing to lower it. If both agents in the transaction are from the same brokerage, you might have more leverage to negotiate.
- Hire a discount agent: A low-commission real estate agent will likely charge much less than a traditional agent would — usually 1 to 1.5 percent of your home’s sale price. (However, you might not receive the personalized attention you would with a traditional Realtor.) There are also brokerages and agents who work on a flat-fee basis, earning a preset amount on the sale rather than a percentage of the sale price.
- Sell to a cash-homebuying company: These companies, which often advertise “we buy houses,” pay in cash, close quickly and typically charge no fees. However, if you sell this way you’re likely to get a lower price for your home than you would with a traditional sale.
In this do-it-yourself digital age, home sellers and buyers alike might wonder if they need Realtors — or, more precisely, to pay Realtor fees. Just how crucial are these agents to a successful real estate transaction?
Well, a good agent is really pretty useful. It makes sense to work with one, especially if you’re buying a home: Agents have access to information you don’t, and it takes time and expertise to research properties, find the best ones for you and put in a strong offer. But sellers see many benefits, too, especially when figuring out the best asking price. Your home will still need to be staged, listed on the market and shown, too.
Here, we’ll take an in-depth look at how real estate agent fees work. One important note first: There is an ongoing legal battle right now relating to Realtor commissions and how agents get paid. Until that’s resolved (more on the lawsuit below), we’ll share how commission structures currently work, so both homebuyers and sellers know what to expect.
How much are Realtor commissions?
Only a very small portion of Realtors work on salary — the commission model is much more common. For years, the going rate was a firm 6 percent, split down the middle between the buyer’s agent and seller’s agent. But it began to fluctuate with the advent of discount brokers and the rise of online, publicly accessible listings.
Nowadays, real estate commissions can be negotiated, and they typically run somewhere between 5 and 6 percent of a home’s sale price. The exact terms of an agent’s commission vary from sale to sale, and can depend on the region and which firm they work for.
Let’s look at an example. According to Redfin data, the median home sale price in Cincinnati in December 2023 was $259,500. A 5 percent real estate commission on that price would come to $12,975. But in San Francisco, where the median was a considerably higher $1.17 million, a 5 percent commission would come to $58,500.
Here’s roughly what you can expect to pay assuming a 5 percent total commission, based on the price your home sells for:
| Home’s sale price | Seller’s agent commission (2.5%) | Buyer’s agent commission (2.5%) | Total commission (5%) |
|---|---|---|---|
| $250,000 | $6,250 | $6,250 | $12,500 |
| $500,000 | $12,500 | $12,500 | $25,000 |
| $750,000 | $18,750 | $18,750 | $37,500 |
| $1,000,000 | $25,000 | $25,000 | $50,000 |
Seller vs. buyer commission
Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee after the transaction closes. If it’s an ”exclusive right to sell” arrangement, they pay the fee even if they found the buyer on their own.
Commissions for both Realtors in the transaction are typically paid by the home seller: Both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent.
That changes in the case of dual agency, when one agent represents both the buyer and seller in a transaction. Laws about this vary by state; in some states, dual agency is not permitted. In this type of scenario, pay particular attention to the home appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.
As Samantha Fish, an agent with Wesely & Associates in Grass Valley, California, points out, agents are required to act in their clients’ best interest. “It’s in our ethics; it’s in our contract,” she says. “If someone comes into my open house and they like it, but they don’t have an agent, at that point I can say, ‘let me get you an agent from my office’ so they feel like they’re being represented 100 percent as well.” Still, buyers working directly with a listing agent may have more room for negotiation because the seller may agree to a lower selling price if the agent agrees to lower their fee.
If you’re working with a buyer’s agent, “you have to sign a buyer’s agency agreement,” says Tim Noland, broker/owner of Great Mountain Properties in Murphy, North Carolina. “A true buyer’s agent works for the buyer. They protect the buyer’s investment, as opposed to the listing agent, who’s working for the seller.”
The broker’s cut
Real estate brokerages may get a cut of the commission as well. The brokerage RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.
“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” says Patrick Duffy, broker/owner of Duffy Realty in Miami. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”
What do real estate agent fees cover?
You might wonder, what services does this fee buy me? One of the biggest ways buyers benefit from working with a Realtor is gaining access to the multiple listing service (MLS), the database Realtors use to see and list properties for sale.
The fee compensates the agent for time spent answering questions and helping you through the process. An agent is also able to utilize their skills and contacts to negotiate, find properties and take you on tours of multiple homes.
A Realtor’s fee covers a wide range of costs for sellers as well, including marketing materials, staging and showing the property, coordinating open houses and contacting agents of potential buyers. When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers.
Though home sellers may feel that Realtor fees are too high, a lot goes into listing a home, such as:
- Creating a comparative market analysis to establish a competitive price
- Arranging for photo shoots, sometimes including aerial shots via drone
- Writing descriptive listing copy to attract interest from other Realtors and potential buyers
- Providing staging guidance
- Showing the property multiple times to prospective buyers
- Hosting open houses, often on weekends
- Providing yard signage
- Making sure listings are populated on all major property search websites
- Helping the seller review and negotiate buyer offers
As with most of the other expenses related to real estate transactions, a Realtor’s fee isn’t paid until the sale closes.
Average real estate commissions by state
Overall, the national average Realtor commission in 2023 was 5.49 percent, according to data from Clever. In all but a few states, the average commission ranged between 5 and 6 percent.
Keep in mind, though, that Realtors may accept a lower commission for high-priced homes to earn a higher amount overall: Their piece of the pie may be smaller, but it’s a richer slice. “In situations where there’s a competitive environment for a prime or trophy listing, Realtors sometimes will negotiate the commission upfront,” Duffy says. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money. In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.”
Here are the average real estate commissions by state, according to Clever:
| State | Average commission rate |
|---|---|
| SOURCE: Clever | |
| Alabama | 5.45% |
| Alaska | 6.00% |
| Arizona | 5.44% |
| Arkansas | 5.99% |
| California | 5.11% |
| Colorado | 5.62% |
| Connecticut | 5.47% |
| Delaware | 4.88% |
| District of Columbia | 5.49% |
| Florida | 5.37% |
| Georgia | 5.81% |
| Hawaii | 4.78% |
| Idaho | 5.50% |
| Illinois | 5.35% |
| Indiana | 5.56% |
| Iowa | 5.67% |
| Kansas | 5.58% |
| Kentucky | 6.00% |
| Louisiana | 5.56% |
| Maine | 5.17% |
| Maryland | 5.34% |
| Massachusetts | 5.45% |
| Michigan | 5.92% |
| Minnesota | 5.82% |
| Mississippi | 6.07% |
| Missouri | 5.58% |
| Montana | 5.50% |
| Nebraska | 5.25% |
| Nevada | 5.80% |
| New Hampshire | 5.25% |
| New Jersey | 5.21% |
| New Mexico | 5.90% |
| New York | 5.39% |
| North Carolina | 5.52% |
| North Dakota | 5.00% |
| Ohio | 5.99% |
| Oklahoma | 5.95% |
| Oregon | 5.03% |
| Pennsylvania | 5.48% |
| Rhode Island | 5.50% |
| South Carolina | 5.62% |
| South Dakota | 5.49% |
| Tennessee | 5.58% |
| Texas | 5.73% |
| Utah | 4.90% |
| Vermont | 5.49% |
| Virginia | 5.45% |
| Washington | 5.25% |
| West Virginia | 6.67% |
| Wisconsin | 5.15% |
| Wyoming | 6.00% |
How to avoid paying Realtor fees
Selling your home without the help of a real estate agent — called “for sale by owner” or FSBO for short — is certainly possible. Between July 2022 and June 2023, 7 percent of home sales were sold by owners without the help of an agent, according to data from the National Association of Realtors. But selling without an agent’s help is a lot of work to do on your own, and it only saves you one agent’s commission — you’ll still have to pay your buyer’s agent.
If you don’t want to go it alone, ask agents from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it. If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage to negotiate as well.
Alternatively, you could consider working with a low-commission real estate agent, who will likely charge much less than a traditional agent would (usually 1 to 1.5 percent of your home’s sale price). However, since they’re receiving a smaller commission on each property, these agents are typically focused on volume. As a result, you might not receive as much personal attention as you would with a traditional Realtor.
There are also brokerages and agents who work on a flat-fee basis. In other words, no matter how much your home sells for, they’ll receive a set amount rather than a percentage of the sale price.
If you want to avoid Realtor fees and sell your house quickly, another option could be selling to an iBuyer or a company that buys houses for cash. Both options will allow you to finalize your home sale fast, without paying any agent commissions. But the offers from these buyers will be less than you’d fetch in a traditional sale, and some charge service fees that are equivalent to what you’d pay in commission anyway.
Finally, remember that even if you’re not paying Realtor fees, there are still plenty of other closing costs associated with selling your home. For instance, you may be on the hook for things like title transfer fees, attorney fees, property taxes and more.
The lawsuit that could change everything
A lawsuit currently making its way through the courts has the potential to upend the entire real estate commission model that currently exists. (That is, sellers footing the bill for both their own agent and their buyer’s, typically totalling 5 to 6 percent of the home’s sale price.)
In October 2023, a federal jury found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions. A judge ordered these firms to pay $1.8 billion in damages to the home sellers that brought the lawsuit against them, but the figure has the potential to balloon up closer to $5 billion. If the verdict stands, it could mean that home sellers would no longer be required to pay the agent who represents their buyer.
However, things are far from final. NAR has announced plans to appeal the decision, and it might be years before we see the impacts of this ruling (if it holds).
FAQs
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The traditional standard commission is 6 percent of a home’s purchase price, which is then split evenly (3 percent each) between the agent representing the buyer and the agent representing the seller. However, the amount is negotiable and typically averages lower, somewhere between 5 and 6 percent.
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Typically, sellers are the ones who cover real estate agent commissions — both for their own agent and for the buyer’s. That may change if a lawsuit currently making its way through the courts is successful, but it will be quite some time before we see its impact (if any).
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It depends on the specific terms of your agent’s commission. Most commissions range between 5 and 6 percent of the home’s purchase price — on a $500,000 transaction, 5 percent comes out to $25,000 and 6 percent comes to $30,000.