Homebuyers Weigh-In on Purchase Fees and Agent Commissions

According to a new Redfin research, more than one-quarter of recent homebuyers (28%) do not know how much their agent was paid, and 17% do not know how the amount was determined. A comparable percentage—an estimated 19%—have no idea who paid their agent.

Per the report, just over one-third of recent homebuyers know exactly how much their agent was paid (37%) and who paid them (38%), but a slightly smaller percentage understands how the figure was established (33%). These commissions have always been negotiable, but it has been common for the home seller to pay both their agent and the buyer’s agent, with a commission of 2.5%-3% of the home sale price typically going to their agent and another 2.5%-3% going to the buyer’s agent.

“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,” said Daryl Fairweather, Chief Economist at Redfin. “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. People feel awkward talking about money, but it’s important to understand what your agent is charging and have a discussion about whether you will need to ask the seller to cover your agent’s fee as part of your offer negotiation or pay for it out of pocket.”

Real estate agent commissions have recently been in the spotlight, as the National Association of Realtors (NAR) agreed to pay $418 million in March to resolve a series of class action lawsuits over agent compensation. As part of the settlement, NAR agreed that agents must enter into formal agreements with buyers before touring any homes. These agreements must include the pay that agents will get.

Roughly 40% of Homeowners Planning to Sell Soon Think Agent Pay is Too High

Redfin requested potential sellers (and purchasers) to share their thoughts on a 3% commission for buyers’ agents and a 3% commission for sellers’ agents. This data includes the 260 responders to this question who intend to sell their homes in the future year.

Approximately two out of every five homeowners (39%) who intend to sell their property within the next year believe a 3% commission for a buyer’s agent is “a little” or “very” expensive. However, a similar proportion (36%) of probable sellers said it seems “just about right,” while 26% said it appears “a little” or “very” low.

The response rates were similar when Redfin asked about pay for sellers’ agents. Roughly two of every five (39%) homeowners who plan to sell their house in the next year think a 3% commission for a seller’s agent seems “a little” or “very” high. But almost exactly the same share (40%) said it seems “just about right” and 21% said it seems “a little” or “very” low.

In conclusion, nearly 20% of recent buyers have no idea who paid their agent or how the figure was calculated. Some 39% of homeowners planning to sell believe a 3% buyer’s agent commission is excessive, while about the same percentage believe it is reasonable.

To read the full report, including more data, charts, and methodology, click here.

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Demetria C. Lester

Demetria C. Lester is a reporter for MortgagePoint (formerly DS News and MReport) with more than eight years of writing and editing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is a jazz aficionado, Harry Potter fanatic, and likes to read. She can be reached at demetria.lester@thefivestar.com.
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