Real Estate Commissions – Facts Over Fallacy
Contrary to recent headlines, real estate commissions have always been negotiable.
A lot of talk in the media has been falsely stating things like this CNN article that starts off with: “The 6% commission, a standard in home purchase transactions, is no more.”
The fact of the matter is this – There is no standard or set rate of commission.
Many media outlets ran with the story before getting or knowing all of the facts. Local and national media outlets along with government officials, decided that it was better for them to sell clicks over factual content.
The narrative that seemed to get the most clicks are headlines like this:
- “Real estate commissions are being slashed!”
- “Selling your house will now be less expensive!”
- “No more paying 6% to real estate agents!”
They were reacting to a “proposed” settlement that will basically do two things:
- Prohibit an MLS system from publishing an amount of compensation paid to a Buyer’s Agent.
- A Buyer’s Agent must have a written Buyer Broker Agreement (employment agreement) to tour homes with a REALTOR®
Facts Over Fallacy:
Here are a few facts.
- Nothing has been “slashed” as far as commissions are concerned. Fees are still negotiated between Brokers, Sellers, and Buyers every day. Just like they have been for as long as I have been in this business.
- Nothing has changed to require anyone to work for more or less money than they negotiate with their client.
- Many people will pay 6% to sell a home. Many will also pay less, many will pay more. Nothing has changed as far as the ability of a broker to charge what they feel is right for their business. IF a home Seller or a home Buyer does not agree with that fee, they are not forced to pay it. They can simply choose to work with someone else.
Some Interesting Reading about Real Estate Commissions:
I thought this “Beyond The Headlines” article made some really good points.
This article says “NAR Settlement May Lead To More Complex Deals” and mentions that additional and unnecessary burdens may be placed on buyers. First time homebuyers and VA buyers will be burdened more than others if the DOJ has their way.
An interesting take here says: Northwest MLS criticizes DOJ commissions stance. They make some good points.
Housingwire has chimed in with some information about buyer’s agency. Not everyone thinks it’s a good idea for a buyer to be unrepresented. Some home buyers could be put at a disadvantage if they can not afford representation. The Department of “justice” really should look closely at this.
Reminding People of the Truth:
Standardized Forms – Not Standardized Real Estate Commissions:
In Arizona, our standardized forms are put out by the Arizona Association of REALTORS®. These forms are reviewed by real estate experts and real estate attorneys. They are also protected by Copyright. NONE of our forms mentions any kind of set fee.
As you can see on this photo, there is a compensation section. The compensation clearly explains how the Owner of the home will compensate the real estate Broker. Lines 30-31 are very clear. The bold letters read:
“Compensation for the sale or rental of the Premises is not set by any Association/Board of REALTORS® or by any Multiple Listing Service.
Line 39 is filled out once the homeowner and the listing agent / broker agree upon a fee. *Please note: The form above could change in the future. It is part of our current listing agreement.
The Buyer-Broker Exclusive Employment Agreement also states that commissions are not set by any board or association.
State and National Associations Chime In
Our own Arizona Association of REALTORS® mentions some key points about real estate commissions, as well. Here are a few of them.
● There is no such thing as a standard commission. Each transaction and agent-client relationship is different. Compensation has always been negotiable between agents and their clients and takes many forms such as a percentage, fixed rate, hourly rate, or any other mutually agreed upon arrangement. In Arizona, consumers are fortunate to be able to choose from a number of different business models offered by real estate professionals.
● Cooperative compensation benefits consumers. Sellers use it to attract buyers, which ultimately increases the number of offers they receive, resulting in a higher sales price. And we know that buyers benefit from professional representation in what for many will be the largest and most complex purchase of their lives.
● Even after these new rules go into effect, listing brokers and sellers can continue to offer compensation for buyer broker services, just not communicated via the MLS.
● The settlement provides that MLS participants working with buyers must enter into written representation agreements with those buyers. REALTOR® associations have long encouraged their members to use these written agreements because they help consumers understand exactly what services will be provided, and the cost of those services.
Just as our State Association is very clear in their messaging, our National Association provides this information concerning any set amount of real estate commissions.
“Following recent inaccuracies in media coverage, including the false representation or suggestion that the National Association of REALTORS® (NAR) requires a standard 6% commission, NAR has issued the following statement:
CHICAGO (March 19, 2024) – The National Association of REALTORS® (NAR) does not set commissions – they are negotiable. The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero. And other rules throughout the MLS Handbook and NAR policy expressly prohibit MLSs, associations, and brokers from setting or suggesting any such amount that should be included in that field.”
Why so many recent conversations about commissions?
On Friday, March 15th, 2024, the National Association of REALTORS® announced a “proposed settlement agreement” and began to put out information to Association members and the public.
I have included articles on this page that seem to be accurate along with some that are not. I will continue to do my best to objectively share my personal and professional beliefs concerning real estate commissions and the industry as a whole. Yes, I have been a REALTOR® for a long time. (since 1992) Sure, some may say that my opinion is biased. So be it.
So Now What?
As a REALTOR, my job is to represent the best interest of my client. Just like it has always been. That will never change. The fact that the DOJ now wants to eliminate how our MLS system can display how one brokerage will pay another won’t change that.
If YOU have any questions about how I work, please feel free to contact me any time. As always, I’m happy to “talk shop” with anyone who would like to do so.
Going forward, I believe most home sellers will continue to offer a co-broke to another agent / broker to help with the sale of their home. We will certainly explain to our home sellers that we believe it is in their best interest to do so. When working with home buyers, we will continue to go over their compensation options before we begin working together. If a Seller decides against offering compensation, we will continue to work with our home buyers under a separate fee agreement.
