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Real estate agent fees are under pressure. And it could be good news for home buyers.
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A few real estate market trends are already taking shape this year. And they’re all monumental shifts for home buyers.
First, the Federal Reserve has paused its interest rate hikes, which has helped mortgage interest rates decline. Second, home prices have cooled and are predicted to fall this year.
Those two trends alone are significant. But another prediction from Redfin has the potential to continue reshaping the real estate industry for years to come: Agent commissions are under scrutiny.
After a $1.8 billion jury verdict against the National Association of Realtors and two other brokerages that called into question the fees agents charge, agent commissions are under the magnifying glass right now. The Department of Justice is also considering litigation that could significantly impact the industry’s current commission structure.
Already, it’s causing some agents to lower their fees.
Agent commission fees are dropping
Redfin said for the first time in its 20-year history it’s beginning to see “widespread discounting” for some agent fees and that the trend will likely accelerate this year. For context, when you buy a house, you typically pay a 5% to 6% fee on the price of the home, which is then split between the buyer’s agent and the seller’s agent.
But with home prices up 27.7% over the past three years and interest rates rising quickly over that period, agent fees become more noticeable to buyers who were paying top-dollar for homes.
Some agents are trying to get ahead of any sweeping changes to the industry and are lowering their fees. The Consumer Federation of America believes agent commission fees will drop to between 3% to 4%.
What this means for home buyers
While the real estate industry is reeling from potential changes, the result could be great news for buyers.
Shedding light on commission fees gives buyers more power to negotiate the percentage an agent takes during the real estate transaction. Redfin thinks buyers are becoming more aware of what agents charge and will be more willing to negotiate fees this year.
Buyers may also opt to work only with a home’s listing agent instead of hiring a real estate agent of their own. The result is that buyers could end up paying thousands of dollars less in agent fees (tacked onto the price of a home they buy) because only one agent is involved.
The shift underway in the real estate industry could be difficult for some agents because they could potentially make a smaller percentage on home transactions than in the past. Redfin has said the result could eventually result in half of all real estate agents leaving the industry.
But for buyers, the changes coming this year mean that housing could potentially be more affordable. Just as buyers shop around for the best mortgage lender, they may be more willing to shop around for an agent. The Consumer Federation of America estimates lower fees could save home buyers up to $30 billion annually.
With mortgage interest rates still elevated and home values soaring over the past few years, buyers will certainly take any break they can get.
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