Will Real Estate Agent Commission Rates Ever Fall?

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The real estate agent commission rate has shown remarkable resilience over the years, even in the face of evolving market forces, technological advances and legal challenges. This article explores why traditional commission rates have remained stable and the factors that could potentially lead to changes in the future.

When selling a home, many homeowners opt for full-price brokers and incorporate the agent's commission into the sale price. This decision is often made because selling a home is a high-stakes transaction that doesn't occur frequently and many other methods for selling don't typically procuce an optimal outcome for the seller. However, some experts have predicted that the internet would significantly reduce agent commissions, while discount brokerages have promised substantial savings to sellers for years. Neither of these predictions has come true.

Historically, agent commissions reached their peak in 1991 at an average of 6.10% and fell to an all-time low of 4.94% in 2020. However, they have been gradually rising again, reaching 5.06% in 2021 and 5.32% in 2022. Interestingly, top-performing agents rarely lower their commission rates.

Current housing affordability challenges might prompt changes in the traditional agent commission structure. Inventory shortages, strong demographic demand, and class-action lawsuits attacking the commission system could all play a role in reshaping the industry.

The most significant legal threat is the "Moehrl case," a class-action lawsuit against the National Association of Realtors and several top real estate brokerages. The plaintiffs argue that the traditional commission structure is anti-competitive and lacks transparency. If the defendants lose, home buyers may need to negotiate commissions with their agents directly, leading to potential commission reductions.

Moreover, new business models have emerged that challenge traditional agent commissions. Opendoor's "Opendoor Exclusives" platform allows users to buy off-market deals without involving real estate agents. Similarly, Decentre PX, an online auction marketplace, enables homeowners to sell without paying commissions.

Despite these challenges, betting against the traditional real estate commission model would be unwise. It has withstood scrutiny from the Justice Department, triumphed over discount brokerages in federal court, and persisted in the internet age. Homeowners have more information than ever, but they still hesitate to use alternative options or discount brokerages.

Ultimately, when sellers face one of the most significant transactions of their lives, they often feel that the risks of trying alternative methods or negotiating lower commissions are too great. For now, the real estate agent commission rate remains remarkably stable, but only time will tell if that will continue in the face of evolving market forces and legal threats.

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