Looking at real estate online is a guilty pleasure for those buying a home or dreaming about buying a home. In the past decade, how we search for homes has dramatically shifted, with websites like Zillow, Homes.com, and myriad others allowing curious people to tour homes from the comfort of their couches. With the recent news about real estate agents, home sellers and buyers might question the necessity of hiring Realtors and, more specifically, paying Realtor fees. Just how essential are these agents for successful real estate transactions?

A skilled agent proves to be quite valuable for buyers and sellers alike. For home buyers, working with a Realtor makes sense: Agents have access to information that might be beyond your reach, and it requires time and expertise to research properties, identify the best ones for you, and make a compelling offer. Sellers can also reap many benefits, particularly when setting the optimal asking price. Your property will still need staging, market listing, and showings. Here, we'll explore how real estate agent fees work and what you receive in return for the investment.

Before diving in, it's important to note that changes are coming fast. As a result of a legal battle recently settled by the National Association of Realtors (NAR) and several major brokerages, new rules will take effect in July 2024.

The NAR Lawsuit

In October 2023, a federal jury found that the National Association of Realtors (NAR) and several large brokerages had conspired to inflate Realtors' commissions. All brokerages settled out of court, and by March 15, 2024, NAR had done the same.

As a result, the traditional real estate commission model is being overhauled, where sellers typically cover the costs for both their own agent and the buyer’s agent, totaling 5 to 6 percent of the home’s sale price. Pending final court approval, as of July 2024, home sellers will no longer be required to pay the agent representing the buyer. This could lead to increased competition among buyer-side agents and more room for fee negotiation.

Current Realtor Commission Structure

Most Realtors work on commission rather than salary. Traditionally, the standard rate has been around 6 percent, divided equally between the buyer’s and seller’s agents. This figure has started to vary in recent times with the rise of discount brokers and online listings.

Today, real estate commissions are negotiable and typically hover near 5 percent of a home’s sale price. The exact terms of an agent’s commission can differ from transaction to transaction, often influenced by the region and the firm they represent.

Assuming a 5 percent total commission under the current model, here’s what you might expect to pay based on your home’s sale price:

| 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 typically sign a listing agreement with a Realtor, agreeing to pay a commission fee upon transaction completion. In an "exclusive right to sell" agreement, the seller pays the cost even if they find the buyer independently.

Traditionally, home sellers have covered the commission fees for both the buying and selling agents using proceeds from the sale. Typically, each agent receives half—so a 6 percent commission splits into 3 percent for the seller’s agent and 3 percent for the buyer’s agent.

This arrangement will change once new rules come into effect this summer. It also changes in dual-agency scenarios, where one agent represents both the buyer and the seller. Laws regarding dual agency vary by state; some states do not permit it. In dual agency cases, particular attention should be paid to the home appraisal to ensure a fair price. While agents have a fiduciary duty to their clients, dual agencies can blur these lines.

Still, buyers working directly with a listing agent may have more room for negotiation, as sellers might agree to a lower selling price if the agent agrees to reduce their fee.

What Do Real Estate Agent Fees Cover?

You might wonder what services are included in the commission fee you pay to a real estate agent. One of the most significant benefits for buyers working with a Realtor is access to the Multiple Listing Service (MLS), which is essential for viewing and listing properties for sale. The agent’s fee compensates for their time spent assisting you through the buying process, including answering questions, finding properties, negotiating, and conducting tours.

For sellers, a Realtor’s fee covers a broad range of services, such as:

• Creating marketing materials
• Staging and showing the property
• Coordinating open houses
• Contacting agents of potential buyers

When an offer is made, the listing agent negotiates on behalf of the seller, often presenting counteroffers.

Listing a home involves several tasks, including:

• Conducting a comparative market analysis to set a competitive price
• Arranging photo shoots, sometimes with aerial drone shots
• Writing compelling listing descriptions to attract interest
• Providing staging advice
• Showing the property multiple times to potential buyers
• Hosting open houses, typically on weekends
• Installing yard signage
• Ensuring listings appear on all major property search websites
• Assisting the seller in reviewing and negotiating buyer offers

Notably, a Realtor’s fee is typically not paid until the property sale is finalized.

Understanding real estate commissions is paramount for anyone entering the market, whether buying or selling a home. With significant changes coming in July 2024, staying well-informed will help you navigate these new waters more effectively. Stay tuned for more updates and insights into real estate commissions as we approach the implementation of these new rules. In the meantime, always work with a reputable and trustworthy Realtor who has your best interests at heart. Happy buying/selling!