Real estate commissions have survived the rise of the Internet and decades of attacks from disruption-minded discounters. Now, finally, they might be coming down.

A federal lawsuit has forced changes in the way consumers negotiate and pay real estate agents. A federal jury in Missouri found, in October 2023, that the National Association of Realtors, along with several large brokerages, conspired to inflate Realtors’ commissions. All the brokerages settled out-of-court, and this March, 2024, NAR settled, agreeing to pay $418 million in damages, as well as to change some of their long-standing rules. (Final court approval is expected this November.) Here’s what it means for homebuyers and sellers.

How real estate commissions are changing: A ‘price war’?

As of Aug. 17. 2024, home sellers are no longer automatically on the hook to pay both their own agent and the buyer’s agent. Instead, homebuyers who want representation may have to pay their own agents separately: The new system that NAR agreed to in settling the suit requires that when a home hits the market, listing agents no longer specify how much the buyer’s agent will be paid. Instead, that charge will be subject to negotiation directly between the buyer and the buyer’s agent.

Next up, perhaps: Full-throated price competition among buyers’ agents. “You’re going to see a buy-side price war by next year,” says Vishal Garg, CEO of mortgage company Better.

Technically, real estate commissions have always been negotiable. Practically, though, agents are better at negotiating than their clients, and commissions have clustered in the range of 5 percent. The new rules set the stage for buyer agents to aggressively market their fees. Stephen Brobeck, senior fellow at the Consumer Federation of America, expects commissions will ultimately fall below 4 percent, maybe even to 3 percent. “Over time, more agents will feel free to offer different types of compensation, and more consumers will comparison shop and negotiate commissions in a more transparent marketplace,” he said. But that is changing, Garg says. “In the best-case scenario, consumers are going to shop around for buy-side agents in the same way they shop around for mortgage lenders,” he says.

A financing wrinkle

There are still many details to be worked out. If the buy-side agent isn’t getting paid out of the listing commission, that would mean the buyer is on the hook to pay their agent directly-a sum that would average about $10,000, based on a 2.5 percent commission and a $400,000 sale price. But for now, buyers aren’t allowed to roll that amount into their mortgage to be paid over time. But it is likely that the Federal Housing Finance Agency will change its regulations to allow commissions in mortgages purchased from Fannie Mae and Freddie Mac. If the speculative comments by industry players are anything to go by, then federal regulators may take up that matter any time soon.

How Much Do Commissions Cost?

Under the longtime standard, when a homeowner sells a property for $400,000-about average for existing homes in America-the seller pays a commission of roughly 5 percent, or $20,000. That commission is then split between the seller’s own agent and the buyer’s agent, which hardly matters since the seller must pay the full amount either way.

A long time 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. Publicly traded Anywhere, reporting to securities regulators, says its average commission “side” – that is, half the commission – is now about 2.4 percent.

While commissions briefly rose during the Great Recession and again in 2023, rates in general have fallen steadily for decades. For Realtors, the 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 lawsuit that went to trial in 2023, home sellers in Missouri accused NAR and four large brokerages — Keller Williams, Anywhere, RE/MAX and HomeServices of America — of antitrust violations. Anywhere and RE/MAX settled before trial — for $83.5 million and $55 million in damages respectively — while the remaining defendants opted to go all the way to trial.

The jury went against the industry, and a judge ordered NAR and the two remaining brokerage firms to pay $1.8 billion in damages to home sellers. Keller Williams ultimately settled for $70 million, while HomeServices of America, part of Warren Buffett’s Berkshire Hathaway, settled for $250 million. NAR too agreed to pay up, and to change its practices.

Other dramas
In addition to the antitrust suit and its ancillaries, NAR has faced other headwinds of late. A sexual harassment scandal shook out the resignation of the organization’s then-president in 2023, and the organization’s next president and longtime CEO then stepped down as well.

All of this drama has left many in the ranks feeling unsettled and restless. Redfin went its separate way, which for many of its brokers and agents meant cancellations of memberships of the trade group, and other brokerages followed. Meanwhile, two powerful real-estate agents innovators announced a counter-trade group called the American Real Estate Association, or AREA.

Competition and the MLS
The residential real estate industry has long stood in dichotomy. The industry, for all practical purposes, has been at the center of a monopoly on the sale of properties via a national network of multiple listing services. That fact has given rise to a succession of grumblings over collusion and price-fixing, not to mention scrutiny from the U.S. Department of Justice.

By contrast, real estate sales is a rather low barrier-to-entry business, as the 1.5 million-agent membership rolls of NAR attest. Most agents qualify for a real estate license after a couple of classes and passing a state exam. No college degree is required, and entry costs are modest. But the settlement is likely to thin the ranks.

Lawrence Yun, chief economist at NAR, last year used the low barriers to entry as proof of the fact that competition is alive and well. “Real estate is a perfectly competitive industry,” Yun said during the organization’s annual conference in November.

The consumer advocate, Brobeck, 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 has long been that commissions are negotiable, implying that sellers and buyers are in charge when it comes to what they pay agents. In practice, though, consumers actually buy or sell a home only about once every 5 to 10 years, if that, and most are not educated enough about the process to be able to successfully negotiate the rate down.

Consumers are at a disadvantage,” said Brobeck. “They buy and sell homes infrequently, and they’re mostly concerned about sale price and timing.”

History’s verdict: discounters haven’t succeeded

For many years, critics have assailed commissions as ripe for extinction. Those commissions were destined to follow the path of stockbrokerage commissions and travel agency fees, the critics said. But real estate commissions have emerged as stubbornly resilient.

It’s not for a lack of trying. While many disruptors have viewed commissions as a problem to be solved, most businesses have stopped short of reshaping the industry altogether.

Ten years ago, for instance, speaking of Dwellus, an app-based discounter called YourHomeDirect-and later Foxtons-decided to break the mold and offer 2 percent commissions in New York and New Jersey. But after advertising heavily and gaining 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 the traditional brokers and touted listing fees of just 1 percent, although it has since shifted to focusing on 1.5 percent listing fees.

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How to save on real estate commissions as a seller

If you are not willing to pay commission to agents, here is how you can go about it:

Go it alone: You can sell your home independently, in a so-called “for sale by owner” deal. Between July 2022 and June 2023, 7 percent of home sales sold without an agent by owners, according to data from the NAR. But, it’s a ton of work you’ll have to do yourself, and technically, you’re only shaving off one agent commission-you may still have to pay an agent working with the buyer.

Negotiate: If you don’t want to go it alone, ask agents about their commission rates up front 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.

Discount agent hire: A low commission real estate agent will charge significantly lesser-a typical commission of 1 to 1.5 percent of your home’s sale price, whereas a traditional agent would have charged more than that. You might not get the personalized attention, however, you would get with a traditional Realtor. Then there are brokerages and agents working on a flat fee model wherein they make a set amount from the sale rather than a percentage of the sale price.

Sell to a cash-homebuying company: Companies that buy houses often advertise with “we buy houses,” pay in cash, can close quickly and charge no fees, and they are like Cash Offer Option to give you multiple cash offers with in days or 99Offers who’ll provide you with local buyers for you to choose from If you sell this way, you’re likely to get a lower price for your home than you would with a traditional sale, but it still sums up to be beneficial looking into the