Oscar Wilde once wrote that “to expect the unexpected shows a thoroughly modern intellect.” Indeed, the only real expectation in an industry as vast, storied, and fluctuating as real estate is that there will be unforeseen, unexpected changes. But now, beyond typical alterations and modifications, many observers believe the real estate industry is about to experience that kind of change after a legal settlement with the National Association of Realtors (NAR). This new settlement has completely undone and restructured the industry’s traditional commission structure, resulting in one of the biggest shakeups in the history of the industry.
The Origin of the 6% Commission
The standard broker compensation for the sale of a piece of real estate has long been established as 6% of the purchase price. This compensation to the broker would be split in half with any other real estate broker who produced a buyer, meaning both brokers got 3% each. That may not sound like much, but given the hundreds of thousands of dollars such a sale is often worth, these percentages add up to a substantial income.
Though this percentage has long been established and pitched as reasonable to buyers and sellers as a standard practice, some people began questioning whether it was fair to the seller. After all, paying equal compensation to a buyer’s broker, whose job is to negotiate the price of your property downward, seems counterintuitive. However, sellers had little choice because their broker had to agree to split the commission in half with the buyer’s brokers as a condition of listing the property on the multiple listing service (MLS).
Before the internet, the MLS was almost the only way to mass-advertise a property for sale and attract qualified buyers, most of whom were represented by NAR-member brokers. At this time, the percentages seemed at least somewhat appropriate, given this fact. But with the advent of the internet and the fact that almost no homebuyers are getting their information from MLS anymore—things changed. But as the industry changed, the percentages refused to change with it.
The End of the 6% Commission
After years of avoiding legal action, the NAR (and several of America’s largest real estate brokerages) settled a massive case in 2023. The settlement included $418 million in compensation for the plaintiffs and a pledge by the NAR to reform its business practices.
Under the settlement, which took effect on Aug. 17, 2024, sellers are no longer responsible for paying buyers’ agent commissions.
If the seller offers a commission split, the seller’s agent can’t include the split percentage in the MLS listing. This requirement ensures that buyers’ agents don’t steer their clients toward MLS-listed properties with the highest commission split.
The Changing Market
When the settlement was announced, many brokers representing buyers in real estate deals feared their compensation would be significantly reduced. However, in a surprising turn of events, the early word from many brokers is that the market remains largely unchanged. Seller’s agents can offer commission splits, but buyers must now sign individual buyer-broker contracts with their agents that specify the broker’s compensation package. In other words, the deals are just negotiated on a case-by-case basis that corresponds to the work put in, rather than an overarching governing rule deciding it in advance.
The biggest difference seems to be the negotiation regarding the compensation the buyer’s broker will receive. Because of tradition, it’s no longer a 50% split of a commission fixed at 6%. Today’s sellers are free to tell their brokers that they will pay them 3% to represent the property and then negotiate how much, if anything, will go to the buyer’s broker.
Blake Blahut, a broker for Orlando, Fl-based Realty One Group Inspiration, told Business Insider, “I have yet to come across a listing that hasn’t offered at least some level of compensation.” This makes a lot of sense when you think about it. After all, if you’ve got a $600K property for sale and another broker brings a qualified buyer to the table, it’s probably still in your best interest to pay that buyer’s agent some compensation.
Buyers could pay their brokers directly, but that’s unlikely, given how expensive houses are in much of the US. The most likely major change will be that the MLS, a relic of pre-internet commerce, will fade away and be replaced by websites like Zillow. That could result in a big win for Zillow shareholders. Keep an eye on this stock. As for home buying, it’s business as usual.
