New Real Estate Commission Rules Have Little Impact on Costs

The introduction of new real estate commission rules, following the National Association of Realtors (NAR) settlement, was anticipated to shake up the housing industry. However, as the first spring homebuying season unfolds under these changes, buyers and sellers are noticing little difference in transaction costs.

Last March, the NAR agreed to a $418 million settlement after facing allegations that its regulations kept commission rates artificially high. The revised policies, which came into effect in mid-August, aimed to increase transparency and prevent agents from controlling commission rates. Despite these efforts, real estate professionals and market analysts report that commission fees and home prices have remained relatively stable, with some experts citing persistent market forces such as high demand and limited inventory as key factors.

Minimal Shift in Costs

Before the settlement, a typical real estate deal involved a seller working with a listing agent while a buyer toured homes with their own agent. Once the sale closed, the seller typically paid a 5% to 6% commission, split between both agents. This amounted to approximately $21,000 to $24,000 for a median-priced home. According to data from the Consumer Federation of America, the U.S. still has some of the highest real estate commission rates in the world, with many other developed nations averaging between 1% and 3%.

The policy changes introduced two major adjustments: sellers can no longer list commission offers for buyers' agents on Multiple Listing Services (MLS), and buyers must sign a formal representation agreement outlining compensation details before viewing homes. These measures were intended to create greater transparency and allow for more negotiation. However, most sellers are still covering buyer’s agent commissions, and industry standards remain mostly intact.

“There is now more transparency between buyers and their agents, which is a positive change,” said Harvey Blankfeld, a real estate agent in Las Vegas. “But it hasn’t had any effect on costs in this market.”

Market Response to the Rule Changes

Rather than significantly reducing commission rates, the primary effect of these changes has been an adjustment in the paperwork involved in real estate transactions. Negotiations over commission fees now occur outside of MLS listings, but the amounts being paid have not shifted much. Patrick Loftus, a real estate attorney in Chicago, noted that while some buyers have inquired about purchasing homes without an agent, most struggle to compete without professional representation.

Similarly, in Orlando, Redfin Premier agent Juan Castro reported that while buyer’s agent compensation is now subject to more discussions, the going rate of about 2.5% remains consistent. Listing agents frequently receive calls from buyer’s agents inquiring about whether sellers are open to negotiation, but most still choose to offer commissions.

Additionally, market data suggests that only a small percentage of buyers are opting to navigate the home-buying process without an agent. According to the National Association of Realtors’ 2023 Profile of Home Buyers and Sellers, only 7% of buyers purchased homes without an agent, a figure that has remained largely unchanged for years.

Lingering Frustration Over Lack of Change

According to Redfin, in the first full quarter following the implementation of these rule changes, commission rates saw only a slight adjustment. By the end of last year, buyer’s agents earned an average of 2.37%, barely down from 2.45% a year earlier—a difference of less than $500 on a $415,000 home. Industry data also shows that the average total commission paid by sellers remains around 5% to 5.5%, despite the reforms.

Despite some reports of minor commission reductions, many buyers and sellers remain dissatisfied, as hopes for significant fee decreases have yet to be realized. With home prices already at historic highs—averaging $417,700 nationally, according to the Federal Reserve Bank of St. Louis—many buyers were hopeful that lowered commissions would help alleviate overall costs. However, this has not been the case in most markets.

“Consumers are just as frustrated as they were before the commission lawsuit,” said Sarah McLaren, CEO of Sellona, a tech company that connects buyers and sellers to facilitate commission-free transactions. “People are still searching for alternatives, but they’re disappointed that commissions haven’t decreased as expected.”

Will Lower Commission Fees Lead to Lower Home Prices?

One major question that remains unanswered is whether reduced commissions will eventually lead to lower home prices. Research from Stanford, Northwestern, and Columbia suggests that cutting commission fees may actually result in higher home prices. The theory is that lower transaction costs make selling a home more attractive, ultimately increasing the overall value of homeownership. While this may benefit existing homeowners, first-time buyers could face steeper prices and greater difficulties entering the market.

Many real estate professionals believe that commission fees may gradually decline over time, but the pace and extent of these reductions remain uncertain. Blankfeld speculated that more buyers may eventually start paying their agents directly. On the other hand, Loftus suggested that if housing inventory expands, sellers may offer higher commissions to attract buyers.

Additionally, data from the National Association of Home Builders indicates that housing inventory remains at historically low levels, with only a 3.2-month supply of homes available nationwide. In a balanced market, a six-month supply is generally considered normal. Until inventory increases, experts argue that competition among buyers will continue to keep commissions and home prices steady.

“The industry’s response to these changes has largely been shaped by the current low inventory,” Loftus explained. “If supply increases, we may see shifts, but for now, commission rates are holding steady.”

As the spring homebuying season progresses, the effects of the NAR settlement remain limited. While transparency has improved, substantial reductions in commission fees and home prices have yet to be seen, leaving many buyers and sellers navigating a market that still feels familiar. Experts suggest that broader economic factors, such as mortgage rates, inventory shortages, and overall affordability, will continue to shape the real estate market far more than commission reform alone.

Also Read: U.S. Mortgage Rates Drop, But Buying a Home Still Isn’t Easy