Are home prices about to fall?
That’s the question many of us are asking after the National Association of Realtors, the trade group representing the industry, agreed to cough up $418 million as part of an antitrust lawsuit alleging that the group had artificially inflated realtor commissions that home sellers pay — which, in turn, helped inflate home prices.
Until now, home sellers paid about 6 percent of the sale price toward a fee that would be split between their own agent and the buyer’s agent. Experts are divided on exactly how much impact this will have on home buyers, who will now likely have to start paying their agents themselves. The median sale price of homes as of late 2023 was about $417,700 — 6 percent of that amounts to a little over $25,000.
As Business Insider’s James Rodriguez noted, lower fees don’t automatically mean homes will be cheaper. In certain cases, it’s possible that sellers might list their home for the same price they would have before the settlement, and pocket more of the sale. But lower commission fees can also encourage more homeowners to list their property on the market, which could lower house prices overall.
The fact is, this real estate settlement is still too new for anyone to know for sure what the ripple effects will be. But one potential winner is tech companies in the real estate space, such as Zillow and Redfin, which have made it more feasible for people to start the home-buying process on their own instead of with a real estate agent. Vox spoke to Sonia Gilbukh, a real estate professor at City University of New York, Baruch College, to explore some of the possible outcomes.
The following conversation has been edited for length and clarity.
What was the problem with the old way realtor commissions worked? And how does this settlement change that?
It used to be that when a seller hired their agent to list a property for sale, they were paying the full commission for the transaction, which was approximately 6 percent — sometimes 5 and a half. The selling agent would then offer about half of that commission to the buyer’s side. Then the buyer’s agent will bring their clients to show all the properties, and if they end up buying the house, [the buyer’s agent] would be entitled to that commission that the seller agent was advertising for the property.
There were several rules that were part of the NAR settlement. Can you explain the new rule that sellers can’t advertise buyer agents’ commissions on the multiple listing service, or MLS, the portal that many realtors subscribe to in order to share and receive information about for-sale homes?
Yes, so the settlement is that they can no longer say, “I’m going to offer the buyer agent 3 percent,” for example, or 2.5 percent. So now, what happens is that the buyer’s agent basically would have no way to know whether they’re going to be paid for the work that they do. So something will have to change. Most likely, the buyer agents will have to directly negotiate with the buyer on the commission that they’re going to receive on a transaction.
Is it still possible that the seller’s agent would pay the buyer agent’s fee?
I think if they really wanted to, they could still post it on their website — there are ways to communicate that. But I think it would be harder to sell that as an industry standard, to the seller. Because the way it worked before is that the selling agent would say, “If you want to sell your house, we have to offer the buyer agent 3 percent, the industry standard. If we don’t, then the buyer agents are not going to show your house to their clients and you’re not going to be able to sell.” Now I feel like it would be harder to make that argument.
I’m guessing that new ways of compensating buyer agents will emerge — maybe some flat fee services, or they’ll negotiate to get paid a percentage of the deal but out of the buyer’s pocket. I don’t think they’re going to be able to keep the status quo.
I’ve been seeing in various reports that the old system, of the seller paying both agents, incentivized a practice called “steering.” Can you explain what that is, and is it really common?
Steering is a practice where the buying agent will not show, or discourage their buyers from properties that offer lower commissions.
Maisy Wong, Panle Jia Barwick, and Parag Pathak have a paper called Conflicts of Interest and Steering in Residential Brokerage, and they show that when buyer agents are offered less than the industry standard, the homes have more trouble selling. That’s basically their conclusion, that the buyer agents are steering their clients away from homes that offer lower commissions to them. I think there’s some potentially alternative explanations — if you offer less commission than the standard, maybe you’re particularly hard to deal with, difficult to negotiate with. But we certainly do see that in the data, that if you’re offering less than the standard, you were potentially jeopardizing your sale outcomes.
The plaintiffs for this lawsuit were home sellers. Beyond lower fees, what does this mean for sellers? Are there other benefits for them?
Well, we don’t know what’s going to happen, but let’s say that they’re no longer responsible for the buyer commission, then the sellers are going to be paying a 3 percent transaction cost. Now, of course, most people who sell their house also then buy a different house — so they’re still going to be paying the buyer commission on the new house that they buy.
I think what’s going to come out of this decoupling of the commission — that the buyer is going to pay for their agent, the seller’s going to pay for their agent — is that the commissions are going to become more negotiable.
And what will happen for buyers? Will some of them forgo hiring a realtor at all? Will the process of searching for a home look different?
I was talking to my mother-in-law, who is a real estate agent, and she actually owned a brokerage before. She was telling me that she views buyers to be in one of two categories: Either you’re a first-time buyer, or you’re somebody who’s selling their house and also buying something else. Those who are selling and then buying, they probably have a relationship with their agents, they probably want their agents to help them buy. So it could be a similar scenario of the status quo for them, with the possibility of maybe shaving a little bit more off the commission.
For new buyers, I think the option of paying a flat fee is going to be more attractive, because it’s going to be cheaper for them to pay a flat fee of, say, $2,000 for you to help me navigate the paperwork or something like that.
Will this mean that home prices fall?
I think eventually, if the transaction costs are going to fall, because the commissions are going to become cheaper and more negotiable. That will put a downward pressure on houses — I also think that will bring more people to sell their homes, because the transaction fee falls, people are going to be more likely to move.
I see. But you said “eventually,” so it’s not necessarily something we might see right away.
Yeah, I think it’s hard to know what’s going to happen — how buyer agents are going to be compensated, and [if] we still have buyer agents at all. We’re in this period of murky transition. For now, it’s pretty easy to sell because there’s just not a lot of inventory. But there’s not a lot of transactions actually happening.
I’m curious why we used this structure in the first place. Why have sellers typically paid both selling and buying agents?
It became the industry standard [in a period when] we had no information out there. We didn’t have Zillow. So buyer agents had a monopoly on information; if I’m not compensated as a buyer agent, or if my compensation is uncertain, then I’m going to only show [clients] the listings where I’m also the seller agent. When the commission structure changed, it improved the cooperation between agents, so they ended up showing their clients listings from other agencies. So that was actually really good.
But of course, now we have Zillow. And the potential for [buyer agents] to steer their clients only to their listings is very limited right now. There’s sort of no need for this system anymore.
Since commissions have historically been paid as a percentage of the sale, did that incentivize agents to show more expensive listings?
For the selling side, they have the incentive to sell at the highest price, essentially. But when you talk to agents, their main objective is to have the transaction happen in the first place. If they put the price too high, they risk the transaction not happening at all, then it’s not really a good trade-off. There’s also this thinking that the big houses sort of subsidize the salaries of the agents, who then also work with cheaper homes.
Some experts seem to think that this settlement will mean some real estate agents exit the industry. Do you think that’s likely? And if there are fewer realtors, is that good or bad for home buyers?
I think that’s very likely. I think most new people who come into the profession start out as buying agents, so if their compensation is going to fall, it’s not going to be worth it for them to enter anymore.
I do think it’s a good thing overall. I actually have a paper, with my co-author Paul Goldsmith-Pinkham, about the experience of real estate agents, and we find that over a quarter of all agents in the market have no experience at all. I think those are the people most likely to exit. As a result, we’re going to have more experienced real estate intermediaries, and more competitive pricing. So I do think it’s overall a good thing for consumers.
What’s the housing market like right now? Is it a seller’s market or a buyer’s market?
I think it’s still a seller’s market, but it’s sort of artificial, because we still have pretty low inventory. So yes, houses are selling quickly, but mostly because there aren’t a lot of homes for sale. Once we’re past this lock-in period — right now, most of the homes have been sold on really low mortgage rates, so it’s hard for sellers to sell and buy something new, because mortgage rates are so much higher. But eventually people will start moving, and eventually they’ll be paying off their loans. So maybe eventually the [mortgage] rates will also drop.
What else is possible in terms of reform and change in the real estate industry?
They could just straight-up outlaw sellers paying buyer commissions — but the current settlement essentially all but does that.
Are there reasons other than the long-term possibility of lower home prices for sellers and buyers to get excited about this settlement? Just how important is it?
I think it’s important. I think there’s going to be more experienced agents out there to represent buyers and sellers. I think the prices are going to drop — a little or a lot, we don’t know yet — but I think they’ll have to adjust. I think there’s going to be more people willing to move homes because the transaction cost of doing that is going to be lower.
The point you make about more homes just being on the market — that seems huge, because as you said before, one of the biggest roadblocks we’re facing is low inventory.
Yes, yeah.
I do want to say that, even though I’ve done extensive research on inexperienced agents, I do think that experienced professionals are really valuable. People should seek help, because [buying a property] is the most important transaction in their lives, probably.
The National Assn. of Realtors on Friday said it will make changes to its commission rules to settle national allegations the requirements stifled competition, a move that may reduce costs for at least some consumers.
The settlement, which still must receive court approval, could mark a major change in the housing market.
Today, sellers typically pay a 5% to 6% commission when they sell their homes, with half of that going to the listing agent’s brokerage and half to the buyer agent’s brokerage, and critics of that model say the settlement could upend that practice.
“This settlement over time will benefit home sellers and buyers greatly, eventually lowering agent commissions by tens of billions of dollars a year and helping align agent compensation and services rendered,” Stephen Brobeck, a senior fellow with the Consumer Federation of America, said in a statement.
Under an existing Realtor rule, listing agents must make an offer of compensation to the buyer’s broker in order to list homes on NAR-affiliated multiple listing services, or the MLS.
Though NAR says this offer can be zero dollars, the requirement to post an offer — known in the industry as “cooperative compensation” — has reduced competition and kept commission rates artificially high, according to lawsuits filed against the Realtors. The rule has also caused buyers’ agents to “steer” their clients to homes that offer higher commission rates, the lawsuits allege.
In a news release, the national trade group said it continues to deny any wrongdoing as it relates to its current commission rule, but to settle the allegations, it will pay $418 million and prohibit offers of compensation to buyers’ brokers on affiliated multiple listing services, which also populate listings on sites such as Zillow and Redfin.
“NAR has worked hard for years to resolve this litigation in a manner that benefits our members and American consumers,” Nykia Wright, interim chief executive of NAR, said in a statement. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals.”
Home sellers could still offer to pay buyers’ broker commissions under the settlement if they communicated it outside the MLS, according to the National Assn. of Realtors.
But not setting the rules of the game at the outset will inject more competition into the process and open up new ways of payment that should lower costs, according to Robert A. Braun, a partner with Cohen Milstein Sellers & Toll, which is representing home sellers in two of the settling cases.
Braun said sellers may still choose to pay buyers’ agents something, or buyers may pay their agents directly after negotiating a fee. They may also choose to go without an agent altogether.
Another option? A buyer agrees to pay a certain price — say $800,000 — only on the condition that the seller then pays the buyer’s agent $24,000, or 3%. “You got a free market,” Braun said.
Commission rates are a small proportion of a sales price, but they add up. For a home sold at the average Southern California price of $842,997, 6% is $50,580.
If such changes drive down commissions overall, it could have a big effect on real estate agents who are paid a proportion of the commission sent to their brokerage.
Higher mortgage rates sent home sales tumbling, reducing pay for agents who are compensated based on the number and price of the deals they transact.
In California alone, NAR lost 9,723 members from December 2023 to January 2024 — a 4.75% decline.
Not all agents are worried.
Michael Khorshidi works mostly with buyers, but sees the new requirements as an opportunity to show the value he brings to clients. Agents who aren’t able to demonstrate their worth will be the ones who lose work, he said.
“We’re always transitioning,” Khorshidi said. “This is just the latest transition.”
If the settlement ends up creating a system in which buyers pay their agents directly, it could saddle them with new costs.
However, Braun argued that buyers would ultimately see reduced costs as well because under the current system, buyer agent commissions get passed along to buyers in the form of higher home prices.
That doesn’t mean sellers make a conscious decision to set their home prices higher because they need to pay a buyer’s agent. Rather, Braun said it means fewer homes make financial sense to sell because some homeowners don’t have enough equity to pay two commissions.
If buyers paid their own agent, more homeowners could afford to sell, increasing supply and helping put downward pressure on price, Braun said.
“Going forward, there is a significant likelihood home prices will be lower than they otherwise would be,” he said.
Michael Copeland, a real estate agent in Palm Springs, doesn’t think the agreement will alter the market too dramatically.
To bring in buyers, sellers may still be incentivized to cover both commissions — just as they do today.
What is the average salary of a real estate agent? It’s a common question that many aspiring agents and those interested in the field ask. Understanding the earning potential in real estate can help individuals make informed decisions about their career paths. In this blog post, we will delve into the topic of real estate agent salaries, exploring the factors that influence earnings and providing insights into the average income one can expect. So, if you’re curious about the financial prospects of becoming a real estate agent, keep reading to discover the average salary and more.
Understanding the Real Estate Agent Profession
Real estate agents play a crucial role in the housing market, acting as intermediaries between buyers and sellers. In this section, we will delve into what real estate agents do and highlight their importance in the market.
What Does a Real Estate Agent Do?
Real estate agents are licensed professionals who assist clients in buying, selling, or renting properties. They act as a bridge between buyers and sellers, helping them navigate the complex process of real estate transactions. Here are some key responsibilities of real estate agents:
- Property Marketing: Real estate agents use various marketing strategies to showcase properties to potential buyers. From creating attractive listings to leveraging online platforms, they work to maximize exposure and generate interest.
- Property Valuation: Real estate agents have a deep understanding of market trends and property values. They provide clients with accurate valuations to ensure fair pricing during negotiations.
- Client Representation: Real estate agents serve as advocates for their clients. They represent buyers or sellers, safeguarding their interests and negotiating on their behalf to achieve the best possible outcomes.
- Contract Negotiation: One of the most crucial roles of a real estate agent is negotiating contracts. They possess strong negotiation skills and work to secure favorable deals for their clients, whether it’s in terms of price, contingencies, or closing timelines.
Importance of Real Estate Agents in the Market
The presence of real estate agents is vital to the smooth functioning of the housing market. Here’s why they hold such significance:
- Expert Knowledge: Real estate agents have in-depth knowledge of the local market, including property prices, market trends, and neighborhood dynamics. This expertise is invaluable when making informed decisions regarding buying or selling property.
- Navigating Complex Processes: The real estate market involves complex legal, financial, and administrative procedures. Real estate agents ensure clients understand these processes and guide them through each step, reducing the potential for confusion or costly mistakes.
- Access to Networks: Real estate agents have extensive networks of industry professionals, including lenders, appraisers, and inspectors. This network enables them to provide clients with a comprehensive set of resources and services, streamlining the entire real estate experience.
- Time and Efficiency: Buying or selling property can be time-consuming and overwhelming. Real estate agents alleviate the burden by handling various tasks such as property searches, scheduling viewings, and coordinating inspections. Their expertise and efficiency save clients valuable time and effort.
- Negotiation Skills: Successful negotiation is a key attribute of a real estate agent. They possess strong negotiation skills and know the art of finding common ground between buyers and sellers. This ability helps clients achieve their desired outcomes while maintaining the integrity of the transaction.
In conclusion, real estate agents are essential professionals in the housing market. Their roles encompass property marketing, valuation, client representation, and contract negotiation. Their expertise, knowledge, and networks are invaluable assets that simplify the real estate process, ensuring clients make informed decisions and achieve their goals.
Factors Affecting the Average Salary of a Real Estate Agent
Location, Experience and Expertise, Brokerage Firm, Market Demand and Competition
As a real estate agent, your salary potential is influenced by various factors. Understanding these factors can help you make informed decisions about your career and income goals. Let’s explore the key elements that affect the average salary of a real estate agent.
Location
The location in which you work plays a significant role in determining your earning potential as a real estate agent. Real estate markets vary by region and even within cities, with some areas experiencing higher demand and property values than others. For example, agents working in popular metropolitan areas with a thriving housing market may have more opportunities to close high-value transactions and earn higher commissions.
Experience and Expertise
Gaining experience and expertise in the real estate industry can directly impact your earning potential. As you build your knowledge and reputation, you become better equipped to serve clients effectively, negotiate deals, and close sales successfully. Experienced agents often have an extensive network and a track record of successful transactions, which can lead to more referrals and repeat business, ultimately increasing their income.
Brokerage Firm
The brokerage firm you work for also affects your average salary as a real estate agent. Different firms offer varying commission structures, training programs, and support services. Some brokerages may focus on specific market segments, such as luxury properties or commercial real estate, which can impact the average price point of the transactions you handle. It’s important to research and choose a brokerage that aligns with your career goals and offers competitive compensation packages.
Market Demand and Competition
The overall market demand and level of competition in your area can significantly affect your earning potential. In a highly competitive market with limited demand, it may be more challenging to secure clients and close transactions. On the other hand, working in a buoyant market with high demand can lead to more opportunities and potentially higher commissions. Monitoring market trends and adapting your strategies accordingly can help you stay competitive and maximize your income as a real estate agent.
To summarize, the average salary of a real estate agent is influenced by factors such as the location in which you work, your experience and expertise, the brokerage firm you are associated with, and the current market demand and competition. By understanding these factors and strategically navigating the real estate industry, you can position yourself for success and increase your earning potential as a real estate agent.
National Average Salary of Real Estate Agents
Real estate agents play a crucial role in the housing market, assisting buyers and sellers in navigating the complex process of buying or selling properties. If you’re considering a career in real estate or simply curious about the earning potential in this industry, it’s important to understand the national average salary of real estate agents. In this section, we will provide you with a statistical overview, annual salary range, and average salary by state.
Statistical Overview
When it comes to real estate agent salaries, it’s helpful to look at the overall picture. According to recent industry data, the average salary of a real estate agent in the United States is around $50,730 per year. However, it’s important to note that this figure can vary significantly based on factors such as location, experience level, and the current state of the housing market.
Annual Salary Range
The annual salary range for real estate agents can be quite broad, with potential earnings spanning from the lower end to the higher end of the spectrum. On average, entry-level real estate agents can expect to earn around $25,000 to $35,000 per year, while more experienced agents and top performers have the potential to earn well into the six-figure range. It’s worth noting that these figures do not include commission, which is a significant component of many real estate agents’ income.
Average Salary by State
Real estate agent salaries can vary significantly from state to state. Factors such as the cost of living, demand for housing, and the overall state of the economy can all impact earning potential. Here’s a glimpse into the average salaries of real estate agents in a few selected states:
- California: With its booming real estate market, the average salary for real estate agents in California is higher than the national average, ranging from $65,000 to $85,000 per year.
- Texas: In a state known for its affordable housing and thriving economy, real estate agents can expect to earn an average salary of around $45,000 to $60,000 per year.
- New York: As one of the most competitive real estate markets in the country, real estate agent salaries in New York tend to be on the higher end, ranging from $75,000 to $100,000 per year.
It’s important to remember that these figures are averages and can vary depending on individual circumstances. Local market conditions, the agent’s experience and expertise, and their effectiveness in closing deals can all play a significant role in determining actual earnings.
Remember, becoming a successful real estate agent requires not only knowledge and skill but also a strong work ethic and dedication to providing excellent service to clients. While the potential for high earnings exists in this industry, it’s essential to approach it with realistic expectations and a commitment to ongoing professional development.
Additional Income Opportunities for Real Estate Agents
One of the attractive aspects of being a real estate agent is the potential for additional income opportunities. In addition to the base salary, real estate agents have the chance to earn extra commissions, bonuses, incentives, referral fees, and even partnership opportunities. Let’s take a closer look at these income avenues.
Commission Structure
Real estate agents typically operate on a commission-based structure, where they earn a percentage of the property’s sale price as their commission. The commission percentage can vary depending on various factors such as the agent’s experience, the type of property being sold, and the local market conditions.
For instance, residential real estate agents often earn commissions ranging from 2% to 6% of the sale price. Commercial real estate agents, on the other hand, may negotiate commission rates differently, such as a fixed fee or a percentage based on the value of the transaction.
This commission-based structure motivates agents to work diligently, as their income is directly tied to their sales performance. The more properties they sell, the higher their earning potential.
Bonuses and Incentives
In addition to commissions, real estate agents may have the opportunity to earn bonuses and incentives. These rewards are often based on specific achievements or milestones, such as reaching certain sales targets, closing a high-value deal, or bringing in a certain number of new clients.
Bonuses and incentives can take various forms, including cash bonuses, all-expenses-paid trips, or even luxury gifts. They serve as additional motivation for agents to excel in their work and go the extra mile to achieve exceptional results.
Referral Fees
Real estate agents can also earn income through referral fees. When an agent refers a client to another agent or broker, they may receive a percentage of the referred transaction’s commission as a referral fee.
This can be beneficial for real estate agents who have a broad network of contacts and can refer clients to other professionals in their field. It not only provides them with an additional income stream but also strengthens their professional relationships and fosters collaboration within the industry.
Partnerships
Partnering with other professionals can be another lucrative income opportunity for real estate agents. By forming partnerships with mortgage brokers, home inspectors, or property managers, agents can create a referral network where they receive a percentage of the revenue generated by their referred clients.
Partnerships can provide agents with a steady stream of passive income, as they earn a portion of the revenues generated by their partners’ services. It also allows them to offer a more comprehensive range of services to their clients, enhancing their overall value proposition.
In conclusion, being a real estate agent offers various additional income opportunities beyond the base salary. From commissions and bonuses to referral fees and partnerships, these avenues allow agents to earn more as they grow their client base, excel in their sales performance, and build strong professional relationships within the industry.
Strategies to Increase Salary as a Real Estate Agent
In the competitive world of real estate, finding ways to increase your salary is crucial for success. By implementing strategic techniques and focusing on key areas, you can maximize your earning potential as a real estate agent. Here are some effective strategies to consider:
Building a Strong Network
Building a robust network of contacts is essential for a real estate agent looking to boost their salary. Networking allows you to connect with potential clients, industry professionals, and referral sources. Here are a few tips to help you build a strong network:
- Attend industry events, conferences, and seminars to meet like-minded professionals and potential clients.
- Join local business organizations and networking groups to expand your circle of contacts.
- Utilize social media platforms, such as LinkedIn and Facebook, to connect with colleagues, clients, and industry influencers.
- Nurture relationships with past clients and ask for referrals, as word-of-mouth recommendations can be a powerful source of new business.
Expanding the Client Base
Increasing your client base is crucial for growing your income as a real estate agent. By adopting proactive strategies, you can attract more clients and close more deals. Consider the following approaches:
- Develop a strong online presence through a well-designed website and active social media presence. Optimize your online profiles and listings for search engines to attract potential clients.
- Leverage local advertising platforms, such as newspapers, magazines, and online classifieds, to reach a wider audience.
- Offer exceptional customer service to your existing clients, as satisfied clients are more likely to refer you to their friends and family.
- Collaborate with other professionals in related industries, such as mortgage brokers and interior designers, to tap into their networks and gain client referrals.
Continuing Education
Continuing education is vital in a constantly evolving real estate market. Enhancing your knowledge and skills can give you a competitive edge and open up new opportunities for higher earning potential. Consider the following options for ongoing education:
- Take advanced real estate courses and earn certifications to demonstrate your expertise in specialized areas, such as luxury property sales or property management.
- Stay up-to-date with industry trends, market conditions, and legal changes through industry publications, webinars, and conferences.
- Invest time in self-improvement by reading books on negotiation tactics, sales strategies, and personal development.
Specialization
Specializing in a specific niche can lead to increased earnings and a more targeted client base. By becoming an expert in a particular area of real estate, you can differentiate yourself from the competition. Consider the following specialization options:
- Focus on a particular property type, such as residential, commercial, or luxury properties.
- Become an expert in a specific neighborhood or market segment, allowing you to provide valuable insights to clients.
- Develop expertise in a niche field, such as investment properties, vacation rentals, or property flipping.
By implementing these strategies, you can take proactive steps to increase your salary as a real estate agent. Building a strong network, expanding your client base, continuing education, and specialization are key areas to focus on to reach your earning potential in the real estate industry.
Remember, success in real estate requires dedication, hard work, and ongoing effort to stay ahead of the competition.
Conclusion
In conclusion, the average salary of a real estate agent can vary depending on various factors such as location, experience, and market conditions. While it is challenging to determine an exact figure, data from reputable sources suggest that the average annual salary for real estate agents in the United States falls within a range of $40,000 to $60,000. However, it is important to note that top-performing agents who excel in their field have the potential to earn significantly higher incomes. As with any profession, the success and earnings of a real estate agent largely depend on their dedication, skillset, and ability to adapt to market trends. Therefore, those considering a career in real estate should be aware of the potential rewards and challenges that come with the industry.