The industry is two years post the historic outcome of the Burnett trial, and more than one year post-practice changes from the National Association of Realtors® (NAR), but the conversations surrounding commissions and compensation have yet to cease.
Many could not agree a year ago how the changes in policy (i.e., the requirement of broker-buyer agreements, and no longer sharing buyer agent compensation offers on MLSs) would affect the industry. Some predicted commission rates for agents could see larger declines, while some thought they wouldn’t change at all. Even now there are still differing opinions on how everything has shaped up for brokerages across the country.
Entering the commission conversation is a recent study from the Consumer Policy Center (CPC), which took a look at the impacts of commission changes for the experience of homebuyers working with buyer agents.
“The Homebuyer Experience: Commissions and Contracts,” from authors Stephen Brobeck—a senior fellow at CPC and the former executive director of the Consumer Federation of America—and Wendy Glick—a fellow at CPC and founder of Selling Later—has caught the eye of many in the industry for their agreements and disagreements on its methods and findings.
Glick tells RISMedia that she and Brobeck pursued the study because while there have been many reports on commissions and the industry changes, “they miss a key piece of the bigger picture.”
“Having read the Facebook comments in real estate groups, heard the stories from other agents and consumers, we knew that regardless of training, or what a company says, it doesn’t always trickle down to the agents,” she continued. “We rarely ever get a true insight into those one-on-one conversations agents have with potential clients. To understand what is really going on, we had to get a true understanding of what consumers were being told.”
The base of the study is Brobeck and Glick’s effort to call 281 real estate agents across 26 cities as “mystery shoppers” to see what they’re telling consumers about commissions post-settlement. The major questions the authors pose are: has there been an increase in broker price competition; what has the impact of the practice changes been on commission negotiations; is the enforcement of broker-buyer agreements being followed; what are promising policies for increasing price competition; and how can buyers and sellers both take advantage of opportunities and avoid risks provided by the changes?
But real estate practitioners have offered a more critical view of the report’s findings, while still acknowledging that the industry has work to do in being transparent and serving consumers.
Jillian Young, CEO of Premier Plus Realty in Florida, says that “anytime these reports uncover confusion or frustration in our industry or the home-buying process, we should definitely take a look and pay attention,” and that some of the behaviors described in the study were “disconcerting” and not reflective of how she and her firm train agents.
She further explained that some studies surrounding commissions seemed “designed to uncover negative practices,” and that while there were some balanced views in the study, a more balanced view would have been to interview buyers who had worked with the agents included to see how they felt about their experiences.
“Did the consumers feel educated? Did they feel represented? Did they feel supported? Did they feel like the compensation that they paid was clear and transparent and all of that?” Young asked. “It’d be interesting to have a more robust study of the buyers.”
Brobeck tells RISMedia that outside the real estate industry, people thought that the NAR settlement and practice changes “would begin to lower buyer agent commissions, especially for agents with the least experience and competence,” as that is the way “almost all other markets for professional services operate.”
He says that he and others were surprised when it became apparent that these changes were not occurring, claiming that most agents were using “work-arounds” to avoid price negotiation.
“These work-arounds, most observers agreed, involved collusion between buyer and listing agents. But how they worked was not clear,” Brobeck continues. “We decided to interview, as prospective buyers, several hundred buyer agents from major national and regional firms, to gain insight into what buyer agents told buyers and how the agents would respond to resistant sellers.”
The findings
One of the main findings of the study was that NAR’s practice changes had “little impact on commission rates” that agents were quoting. Specifically, “nearly all 269 responding agents (95%) quoted a commission rate between 2.5% and 3%, with nearly three times as many agents charging 3% than 2.5%,” the study reported.
RISMedia’s fourth annual Contract & Commission Study found similar results, with the post-settlement dip in commissions falling within historic fluctuations.
Glick’s interpretation is that “uniformity is alive and well in the industry.”
“Some agents are still basing their fee based on what they can get instead of what their services are worth,” she says. “When you have brand-new agents with two sales charging the same as agents with 40 sales this year, that is not a free market.”
Glick also says that it’s “interesting” that a big industry takeaway from the NAR settlement was affordability, yet she and Brobeck “ran into many agents who are charging more because they think they can get it, not because they believe their services equate to that fee, while knowing it can impact a buyer in the process.”
Brobeck and Glick state in the study that there is actually evidence of more buyer agents trying to charge 3% commission rates today than in past years. Brobeck explains that when he and Glick compared their study to that of 2023 research, they found an increase in agents attempting to charge 3%, which they dubbed a “risk premium” with the intention of maintaining the 2.5% to 3% industry standard.
“We were relieved to learn, though, that only one agent quoted us a rate above 3%,” he adds. “Industry critics are looking for rates above this level and intend to publicize them.”
Of note is that Brobeck and Glick found that buyers may have a hard time trying to negotiate lower rates as those “who try to do so are met with a barrage of arguments,” as the two were in their own efforts.
“They justified this refusal by stating or strongly implying that sellers would provide their compensation,” said Brobeck. “There was no effective way a typical buyer could respond to this assertion. If the buyer expressed concern that sellers might be reluctant to make this payment, agents responded that there’s always a way to back out of the offer. Some agents even offered to write into the buyer agreement that the buyer was not obligated to compensate them.”
However, Brobeck and Glick note that interestingly, “two-thirds of responding agents (171 of 254) said they would accept a lower rate from a seller than the rate the buyer agent had requested in the offer,” which they say is “further evidence” agents are charging risk premiums.
Brobeck said it was “interesting” finding that “while typical buyers could not negotiate buyer-agent compensation, sellers apparently could.”
“We knew that one reason for the Sitzer jury decision was that many people think it’s unfair for sellers to pay both commissions. We also knew that surveys revealed that a significant minority of sellers felt strongly about not compensating buyer agents,” he says. “So when we asked agents whether they would negotiate down their compensation when faced with determined sellers, a large majority said they would. And a surprisingly large minority said they would go down as far as 2%.”
In terms of contracts, Brobeck and Glick found that “nearly half” of the agents they spoke to said they would offer a short-term (aka a “touring” or “showing”) agreement or “would agree, if we were dissatisfied, to terminate the contract with no penalty.” These agents also required that they eventually be replaced by longer-term agreements.
Glick says that she was “happy to see” this being offered as an option, as it is a “fair way to work together, while having the agent work for the buyer, without committing to a six-month relationship.”
However, there were some agents Brobeck and Glick found to be ignoring the required broker-buyer agreement that’s required before a showing ever occurs. Specifically, the authors said 17% of agents they spoke to “indicated only that we sign an agreement before making the first offer on a property.” Even more surprising, 5% of the agents said Brobeck and Glick never had to sign a contract, and one agent told them they wouldn’t “sign the contract until we find a property to buy, then we’ll redate it.”
Agents also told Brobeck and Glick that there is “no effective enforcement of the new rules.”
The broker outlook
As the CPC is consumer-focused, brokers and agents may feel that the takeaways of the study don’t necessarily reflect how the industry is operating. Young is one such broker.
Young said that she can’t speak for how other brokerages operate, but she can speak for her own model in terms of commissions. She said at Premiere Plus Realty Co., they charge agents a flat brokerage fee so that they can directly negotiate compensation with clients. As opposed to Brobeck and Glick’s takeaway on compliance, however, Young says that is the brokerage’s job to ensure, as hers does for its agents.
“When I read the quotes where the agents were unwilling to discuss compensation or told buyers that they would never have to pay anything, I mean, we don’t teach that because it’s wrong,” she says. “Transparency is obviously the starting point in our company and the way that we train our agents.”
Young also says that she felt the “methodology of the study influenced its conclusions.”
She directly pointed to the statement on page two of the study that said NAR and other organizations were found “guilty” of violating antitrust laws, a common misconception.
“It was an interesting choice of language; it’s just a framing. It was a civil antitrust liability verdict, not a criminal conviction. I mean, as well as anyone, how important each word is that you choose, and it was a liability verdict, and that was sussed out in all the various settlement agreements,” explains Young. “I think the framing of the language and the methodology of the study, it was kind of like if you go to seek something out, you’re going to find it.”
Young says she would be interested in “hearing how those interviews actually went, the tone of the voice, the forthrightness or the rapport between the buyers and the agents.”
“Did they put agents on the defensive, things like that. Because I think in general, agents want to do a good job and they want to serve people well,” she continues.
Both authors did assert in the study and in interviews that they stood by an unbiased process, and also stated they enjoyed many of their own interactions with the agents they interviewed, found them to be competent and if they were to require an agent’s services in those areas they “would probably seek the services of one of them.”
Overall, Young says reading a study such as this is a “good reminder of how important good communication is.”
“The onus is on brokerage leaders and our agents for us to educate our agents to educate the consumer when they have to stop, explain their representation, responsibilities, and compensation early and clearly, and make sure that they have good buyer presentations that are easy to understand,” she says.
Young also thinks a shift could be observed in future studies that for agents who don’t do a lot of business or have a solid value proposition, they could have a “much harder time in setting a price that consumers are willing to pay in the years ahead.”
“All that to say I love this organization for the consumer, but I would love to see something that was even more balanced, because the truth of the matter is every agent is a small business owner and there’s a place for their voice as well,” she says. “We also need to make sure that we’re advocating for the homebuyer and the homeseller, and that we’re constantly training our agents to make independent decisions about the way that they serve them.”
Legal vulnerability
Perhaps the biggest takeaway of the study for the real estate industry is the future of the legal landscape. In the wake of the Burnett verdict, there were scores of copycat homebuyer and seller lawsuits filed across the country. While many have been settled via NAR’s settlement or separate negotiations, there are still buyer lawsuits making broadly similar allegations. There’s also the still unknown position of the Department of Justice (DOJ) on these practices, which appeared to shift (at least a little) under the new administration.
Brobeck and Glick claimed that uniformity in commissions—coupled with the fact that commission rates are commonly higher in the U.S. than other countries—“exposes the industry to more litigation and antitrust enforcement.”
Brobeck clarified in his interview that the greatest vulnerability of the industry is that the “public will become aware that commission rates are essentially fixed—bearing little relation to the competence, reputation and efforts of individual agents—so cannot effectively be negotiated by either buyers or sellers.”
“That widespread awareness would encourage litigation, public criticism and consumer dissatisfaction,” he said, and Glick agreed with his sentiment.
Young said that if there’s one thing she’s learned in her time as a broker, it’s that “there’s always a reason for someone to litigate against you.”
“We could be litigated against for negotiating too much and making it confusing or negotiating too little and making it less malleable or flexible,” she said. “I think any industry that doesn’t have a lot of differentiation could be seen as at risk.”
However, Young also said that just like other industries, the “market should decide what prices are charged,” and just like any other industry, “sometimes the market settles into what it’s comfortable paying and charging for a particular service.”
Young says that navigating the NAR practice changes “really is a fine line,” as agents and brokers have to follow particular laws and regulations at local and state levels while also adhering to the settlement agreement and satisfy organizations like the CPC and the DOJ.
“It really is a sort of philosophical question about what is best for the consumer and who determines that? Is it the federal government, is it a trade organization or is it advocacy organizations like the CPC that determines that? What can be the most protective and best thing for the consumer?” she asks. “I think that we’re all trying to figure that out…it just takes a little bit of time to get everybody to understand what the path is.”
