PHOTO: The National Association of Realtors
Real estate commissions in the United States are approximately double those found elsewhere globally, prompting inquiries into the disparity. Recent legal actions have spotlighted the debate over the fairness of compensation for real estate brokers, with agents defending the current system while sellers express discontent.
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DailyMail.com interviewed real estate experts to unravel the discrepancies in fees between the U.S. and other countries and to comprehend why Americans are charged significantly more for seemingly identical services. The contentious root of the issue lies in the bundled commission system, a practice adopted by Realtors nationwide since 1913.
Americans pay about twice as much commission to real estate agents as their counterparts elsewhere in the world, according to a report by investment bank Keefe, Bruyette & Woods
The precursor to the influential National Association of Realtors mandated that the agent representing a home seller should always be prepared to divide the standard commission equally with any association member producing a buyer. A report by investment bank Keefe, Bruyette & Woods disclosed that Americans pay roughly twice as much in real estate commissions compared to their global counterparts.
Rob Hahn, a real estate consultant and founder of 7DS Associates in Las Vegas, anticipates a restructuring of the system to involve separate compensation for buyer’s and seller’s agents. In the current setup, both agents receive equal commission, typically ranging from 5 to 6 percent, funded by the seller. This shared pot creates a mutual interest for agents to advocate for larger fees from the seller.
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In practice, listing agents often persuade sellers to offer substantial fees to buyer’s agents, arguing that it is crucial for attracting potential buyers. Hahn explained that this practice is credited with maintaining the commission rate in the U.S. at 6 percent, in contrast to the lower rates prevalent in other developed nations like the UK, where it hovers around 1.5 percent.
The National Association of Realtors is the largest trade association in the US and mandates that the buyer’s and seller’s agents share their commission
In countries where the buyer’s and seller’s agents are ‘unbundled’, use of buyer’s agents was significantly lower according to the KBW report
Keefe, Bruyette & Woods’ report highlighted that nearly all buyers in the U.S. are represented by agents due to the bundled system, in stark contrast to countries like the UK and Australia, where less than 5 percent of home buyers engage an agent. The National Association of Realtors, the largest U.S. trade association, mandates the sharing of commissions between buyer’s and seller’s agents.
The report contends that the bundled system not only artificially inflates buyer’s agent usage but also diminishes the incentive for buyers to negotiate lower service fees. In countries with an unbundled system, where buyers compensate agents directly, commission rates are significantly lower. Following a recent legal verdict against the NAR for enabling collusion to maintain high commissions, impending changes are expected to revolutionize the real estate system in the U.S.
Hahn foresees a shift towards buyers paying agents directly on an hourly basis, potentially leading to a decline in agent usage, leaving many Realtors facing unemployment.