Paying for a real estate agent to sell your home has traditionally followed a specific method: The seller gives a portion of the sale price to their broker, who then divides it with the broker representing the buyer. This commission usually ranges from 5% to 6%, amounting to tens of thousands of dollars deducted from the seller’s earnings. However, the seller has already considered this expense when determining the listing price, meaning the buyer indirectly covers the cost as well. How did this practice become the norm, and will it persist in the future?
The real estate industry may soon undergo significant changes in commission rates following a groundbreaking court case in Kansas City. The jury’s $1.8 billion judgement exposed inflated commissions and collusion among brokerages and industry groups. This case, along with similar lawsuits, has the potential to revolutionize the standard 6% commission and determine who bears the cost. In fact, New York City is already preparing for a fee structure change on January 1, allowing buyers and sellers to negotiate both commission rates and payment responsibilities.
Despite expectations that the internet would diminish the 6% commission, it has remained largely unaffected, even surpassing international standards. While other professions like stockbrokers and travel agents have seen a decline in commissions, real estate agents have experienced growth and higher commissions due to rising home prices. The National Association of Realtors, representing 1.5 million agents, has played a significant role in this. Although the NAR is appealing the recent decision and claims negotiability of its members’ commissions, there are indications of a shifting landscape in the home-selling process.
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