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Why Are So Many Consumers Out of the Loop About Agent Commissions?
Recent data from national property broker Redfin indicates that a considerable number of U.S. homebuyers lack clarity regarding their real estate agent's compensation. According to the findings, 28% are unaware of the payment amount, 17% are unsure how this figure was determined, and 19% are uncertain about who bears the cost of their agent's services. These insights derive from a survey commissioned by Redfin in February 2024 and conducted by Qualtrics, involving 2,995 U.S. homeowners and renters, with a specific focus on 120 respondents who purchased a home within the past year using an agent.
The survey underscores that only around 37% of recent homebuyers possessed precise knowledge of their agent's compensation, 38% were aware of who footed the bill for the agent, and 33% had a comprehensive understanding of how the payment amount was established. Traditionally, it's customary for home sellers to cover the commission for both their own agent and the buyer's agent, typically ranging between 2.5% to 3% of the home sale price for each agent.
Daryl Fairweather, Chief Economist at Redfin, emphasized a significant concern: "Many Americans engage in the most significant financial transaction of their lives without fully comprehending how their agent is compensated. While home sellers often openly discuss fees with their agents, homebuyers could also benefit from such transparency. Though financial discussions may be uncomfortable, it's crucial for buyers to be informed about their agent's charges and whether negotiation for the seller to cover this fee or planning to pay it themselves is necessary."
The issue of real estate commissions has gained prominence in the news, particularly following the National Association of Realtors (NAR) reaching a $418 million settlement in March concerning lawsuits about agent compensation. As part of the settlement, agents are now mandated to establish written agreements with buyers outlining compensation before home tours commence.
Regarding perceptions of fair commission rates, approximately 39% of homeowners intending to sell their homes within the next year consider a 3% commission for a buyer's agent to be somewhat or very high. Conversely, 36% deem it appropriate, while 26% view it as too low. Similar sentiments were observed for seller's agents, with 39% of prospective sellers believing a 3% commission is too high, 40% considering it fair, and 21% regarding it as too low.
