Real estate agent commissions have been a hot topic, especially with recent changes in the industry. Here's a breakdown of how they typically work and why discount brokerages might not always be the best option for buyers and sellers:

Traditionally, real estate commissions have been a percentage of the home's final sale price, usually paid by the seller. This percentage then gets split between the seller's agent's brokerage and the buyer's agent's brokerage.

Key points about traditional commission structures:

• Total Commission: Historically, the total commission has hovered around 5-6% of the sale price.

• Split: This total commission is typically split roughly evenly between the listing agent's brokerage (representing the seller) and the buyer's agent's brokerage. For example, a 5% total commission might mean 2.5% to the seller's agent's brokerage and 2.5% to the buyer's agent's brokerage

• Brokerage Cut: The agents themselves don't keep the entire commission. They have an agreement with their brokerage, and a portion of their commission goes to the brokerage. This split can vary significantly (e.g., 50/50, or a tiered structure where agents earn a higher percentage after reaching certain sales goals).

• Negotiability: While there have been traditional norms, real estate commissions have always been negotiable.

• What it Covers: For sellers, the commission covers a wide range of services, including market analysis, pricing strategies, marketing and advertising (photos, virtual tours, online listings, open houses), showing the property, negotiating offers, and managing the closing process. For buyers, the buyer's agent helps find properties, navigate the market, prepare and submit offers, and assist with negotiations and closing.

Recent Changes (NAR Settlement): A significant change occurred in 2024 with the National Association of Realtors (NAR) settlement. Previously, sellers typically offered compensation to the buyer's agent through the MLS. Now, that's no longer allowed. This means:

• Buyer Pays Their Agent: Buyers must now directly negotiate and pay their agent's commission, and usually need to sign a formal representation agreement before viewing homes.

• Increased Transparency: The new rules aim to increase transparency around agent fees, potentially leading to more negotiation and competition among agents, which could drive down overall commission costs in the long run.

Why Discount Brokerages May Not Benefit Buyers and Sellers

Discount brokerages offer real estate services at a reduced rate compared to traditional models, often through lower commission percentages or flat fees. While the allure of saving money is strong, there are potential downsides for both buyers and sellers:

For Sellers:

• Limited Services and Support: To offer lower fees, discount brokerages often provide a more "bare-bones" service. This might mean:

• Less Marketing: They may focus primarily on listing your home on the MLS, with less emphasis on professional photography, staging advice, social media promotion, and paid advertising. This can lead to less exposure for your property.

  • Less Personalized Attention: Discount agents often manage a higher volume of clients, which can limit the one-on-one time and personalized guidance you receive.

  • Reduced Negotiation Support: Experienced negotiation is crucial for securing the best possible price and terms. Discount brokerages might offer less robust negotiation assistance, potentially leaving money on the table.

  • Self-Service Expectations: You might be responsible for tasks typically handled by a traditional agent, such as scheduling showings, coordinating inspections, or even some paperwork.

• Potential for Lower Sale Price: While you save on commission, a less comprehensive marketing strategy or less expert negotiation could result in your home selling for a lower price. The "savings" on commission might be offset, or even outweighed, by a reduced sale price.

• Hidden Costs: Some discount brokerages advertise low upfront fees but may charge additional fees for services that are usually included in a traditional commission (e.g., listing updates, contract reviews).

• Less Local Market Knowledge: Agents working for some discount brokerages might have less in-depth knowledge of specific local markets, which can impact pricing strategies and overall effectiveness.

For Buyers:

• Lack of Dedicated Agent Support: With buyers now directly responsible for their agent's commission, some buyers might be tempted to forgo a buyer's agent to save money. However, this can leave them without professional guidance in a complex transaction.

• Limited Service from "Free" Buyer Agents (if offered): Some discount models might still attempt to offer some form of buyer representation, but it could come with limited services, potentially steering buyers toward properties that are easier to close or offer higher compensation to the agent.

• Negotiation Challenges: Without an experienced buyer's agent, buyers might struggle to navigate negotiations, understand contract contingencies, and ensure their interests are protected

• Time Commitment: Buyers who choose to navigate the process with minimal agent support will need to dedicate significantly more time to researching properties, understanding market dynamics, and handling paperwork.

• Access to Information: While online listings are prevalent, a good buyer's agent often has access to more comprehensive market data, off-market listings, and insights into specific neighborhoods.

In summary, while discount brokerages can offer cost savings, it's essential for both buyers and sellers to carefully evaluate the scope of services provided and weigh the potential financial savings against the value of full-service representation, expert negotiation, and comprehensive marketing. For many, the peace of mind and potentially higher sale price (for sellers) or better deal (for buyers) that a full-service agent can provide may outweigh the commission savings offered by discount models.

If you are considering selling but worried about the closing costs associated with a sale, in particular the commissions, remember, Commissions for the seller and buyer's agent have always been negotiable.  At the Moles Group, we recommend a certain percentage but understand that rate is negotiable and every transaction is different.