Piles of money and a couple talking with a real estate agent
Illustration by Lanette Behiry/Real Estate News; Shutterstock

How are agents paid? Don’t ask buyers 

More than a quarter of consumers surveyed by Redfin don’t know how much their agent was paid, while nearly 20% weren’t sure who provided the compensation.

April 11, 2024
3 minutes

Key points:

  • “Buyers would benefit” from discussing compensation with their agent, Redfin Chief Economist Daryl Fairweather said in the report.
  • Confusion around compensation is nothing new, with both sellers and buyers unsure about agent pay and the ability to negotiate, a separate report from NAR found.
  • Home sellers appear split on the value of providing a 3% commission fee to buyer agents.

While NAR and major brokerages have been embroiled in litigation and ongoing probing from the Department of Justice — primarily focused around the theme of cooperative compensation and the need for more transparency — it turns out that many buyers and sellers still know very little about how agents are compensated.

Many buyers don't know how — or how much — their agent was paid

A new Redfin report revealed that 28% of recent buyers didn't know how much their agent was being paid, and 17% were uncertain how the agent fee or compensation was ultimately determined. 

Additionally, 19% of those surveyed had no idea who was actually providing their agent's compensation. The findings were based on a Qualtrics survey of nearly 3,000 U.S. homeowners and renters conducted in February.

"Many Americans make the biggest purchase of their life without knowing precisely how the professional they hired to guide them through the transaction is getting paid," Redfin Chief Economist Daryl Fairweather said in the report. 

"Home sellers often have a candid conversation about fees with their agent before signing an agreement to work together. Buyers would benefit from doing the same."

The confusion around agent compensation — how it is determined and who pays it — harkens back to the roots of the class action suits, though NAR's new mandate requiring a buyer agent agreement before touring a property with a client is intended to provide greater transparency. Both home sellers who filed antitrust lawsuits and a DOJ investigation into the industry have alleged that buyer agents frequently "misled buyers" into believing buyer-broker services were free.

But uncertainty or confusion surrounding agent compensation is nothing new. 

In a separate NAR report on generational trends in homebuying and selling, many respondents were unclear on how their agent was being paid. According to the report, 19% of buyers weren't sure if their agent received a percentage of the sale price or a flat fee, and 11% didn't know how their agent was compensated at all. 

Among sellers, 15% did not know commissions were negotiable, and that number was significantly higher for millennials: 24% of older millennials and 21% of younger millennials were unaware they could negotiate.

Sellers have mixed feelings about buyer agent pay

In addition to general uncertainty about the source and amount of compensation, Redfin's report looked at home seller sentiment and found they were evenly split on the value of buyer agent compensation. Of those surveyed, 39% of respondents felt that a 3% compensation fee for the buyer agent was high, while 36% said that they believed that the fee was "just about right." Another 26% of those surveyed thought a 3% fee was low. 

There is speculation, however, that the proposed rule changes from NAR, slated to go into effect in July if the settlement agreement is approved, could help spur competition and innovation in how homes are bought and sold by boosting other business models like flat fees or discount brokerages. 

Meanwhile, one consumer watchdog group predicts that there will be significant downward pressure on agent commission rates over time. However, others are predicting that traditional full-service brokerages and agents asking sellers to provide some form of buyer agent compensation will remain the dominant model.

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