Buyer Agent Commissions Fall To Lowest Point Since 2017

Fierce competition during the fall of 2021 drove buyers’ agents commissions down to their lowest point since the spring of 2017, according to a new Redfin report.

The report reveals that between the beginning of September and the end of November last year buyers’ agent commissions averaged just 2.63 percent of homes’ sales prices. That’s down from 2.69 percent one year prior. It was also the lowest point in all of Redfin’s data on commissions, which goes back to 2017.

Average commission rates have also been declining steadily since the beginning of the coronavirus pandemic, according to the report.

Credit: Redfin

The report goes on to note that “today’s competitive housing market may be accelerating the decline in the buy-side commission rate.”

“Sellers and their agents understand they’ll likely be able to find a buyer regardless of the commission they offer to the buyer’s agent,” the report notes.

Nassau County, New York, had the lowest average buyers’ agent commissions, at 1.98 percent between September and November. The region was the only place in the U.S. with an average below 2 percent. Areas with the next lowest averages were Boston, at 2.21 percent, and Riverside and Anaheim, both in California, at 2.22 percent and 2.25 percent, respectively.

Indianapolis, Riverside and Phoenix all saw the biggest drops in their commission rates, with the average down 0.21 percentage points year over year between September and November. On the other hand, Chicago was the only city in the U.S. to see buyers’ agent commissions tick up slightly, with the average climbing 0.1 percentage point.

Kansas City, Missouri, and Columbus, Ohio, ultimately had the highest average buyers’ agents commissions, at 2.94 percent.

In the U.S., homesellers traditionally pay the commissions for both their own agents and those of the agents representing buyers. Commission rates vary, but a total of 6 percent was a historical norm in many areas, with the seller’s and buyer’s agents splitting the funds so they each got 3 percent. Agents also typically split their portion of the commission with their brokerage or team.

However, recent years have seen ongoing downward pressure on commissions. The result, according to multiple industry leaders, is that in some markets smaller commissions — such as 5 percent, again split in half — have become more or less standard. In extreme cases and markets, some agents have promised to collect even less.

On top of that, newer entrants to the real estate space such as iBuyers have also put pressure on agent commissions.

Joe Hunt

Redfin’s report this week puts an actual percentage value on that pressure, and links it to what Joe Hunt, Redfin’s market manager in Phoenix, described as “a historic shortage of houses for sale.”

“Sellers know their home is a hot commodity and will likely attract multiple offers no matter what, so they’ve started offering the buyer’s agents a 2 percent or 2.5 percent fee instead of 3 percent,” Hunt said in the report. “Why would you offer 3 percent when you know you could offer less and sell your home for the same price?”

The report also identifies increased transparency as a factor in the downward trend of commissions, pointing specifically to a policy the National Association of Realtors approved last fall that allows brokers and agents to display buyer agent commissions.

Credit: Redfin

While falling average commissions are undoubtedly troubling for buyers’ agents, there is a silver lining: The report notes that in absolute dollar amounts, commissions are actually climbing. And that’s happening because home prices have risen lately, with the median sale price of U.S. homes surging “15 percent year over year to $383,100 in November.”

“At $12,415, the average commission fee a buyer’s agent received during the three months ending Nov. 30 was up 6.9% from a year earlier and up 29.2% from the same period in 2017,” the report notes.

Daryl Fairweather

Redfin Chief Economist Daryl Fairweather said in the report that the surge in price is likely not behind the falling average commission rates, instead pointing to the fact “that a well-priced home in this extreme seller’s market will likely attract buyers on its own.” Nevertheless, she added that even with the falling rates, “the seller, their agent and the buyer’s agent are splitting a pie of funds that’s bigger than ever.”

“So even though the buyer’s agent is technically getting a smaller share of the pie, their check is 6.9 percent bigger than it was a year ago,” Fairweather said. “That could change if home prices start to level off.”

Email Jim Dalrymple II