SEATTLE, Feb. 25, 2021 /PRNewswire/ -- (NASDAQ: RDFN) — Today Redfin (www.redfin.com), the technology-powered real estate brokerage, published an in-depth analysis on real estate commissions, giving consumers access to data that has historically been unavailable to them. Redfin's analysis found the typical U.S. home seller in 2020 paid the brokerage representing the buyer a commission equal to 2.7% of the sale price—down only slightly from 2.8% in 2012.
Redfin expects fees will likely decline in 2021 and beyond as data on agent commissions becomes widely available for the first time. Real estate websites are now allowed to publish commission rates that homesellers offer to the broker who brings a buyer as the result of an antitrust settlement between the National Association of Realtors (NAR) and the Department of Justice (DOJ). Sellers will be able to see what other sellers are offering when they visit real estate websites, helping them make more independent and informed decisions.
"When a homeowner can see that their neighbor offered a 2.5% buyer's agent commission rate, it makes it much easier to justify offering a similar rate when they sell their home," said Redfin Chief Economist Daryl Fairweather.
Earlier this month, Redfin began displaying the buyer's agent commission for more than 700,000 home listings and plans to add more data as it becomes available. Redfin will continue to report on commission rates and how they change over time as part of its efforts to make the real estate industry more transparent for consumers.
How Do Commission Fees Work? Most often in a home sale transaction, the seller pays the fees of both their agent and the buyer's agent. While commission rates are negotiable and vary, U.S. sellers typically pay 5-6% of the final sale price, which is split between the seller's agent and the buyer's agent. The DOJ settlement only impacts buyer's agent commissions, which are the focus of this report.
A Red-Hot Housing Market Is Already Prompting Some Sellers to Offer Lower Commissions
Today's hot housing market is accelerating the decline in commissions. Demand for homes is sky-high, with thousands of Americans moving and taking advantage of record-low mortgage rates during the coronavirus pandemic. At the same time, there aren't enough homes for sale, fueling fierce bidding wars. As a result, some sellers have realized that finding a buyer will be a cinch, regardless of the commission they offer to the buyer's agent.
"I've been talking with some of my sellers about offering no more than 2.5% given the lack of inventory," said Sylva Khayalian, a Redfin real estate agent in Los Angeles. "There's such a huge shortage of houses for sale that most homes will attract a long line of eager buyers no matter what. As a result, many sellers feel they don't need to compensate the buyer's agent as much for that part of the process."
iBuyers Pave the Way for Lower Commissions Homes are increasingly being sold by thrifty businesses like iBuyers instead of individual sellers' agents. The term "iBuyer" (short for instant buyer) is used to describe a real estate company that purchases houses from homeowners in quick cash transactions, makes any necessary improvements to the homes, and then resells them.
When an iBuyer resells a home, it pays a commission to the buyer's agent, just like an individual home seller does. The average commission rate paid by iBuyers dropped to 2.5% in 2020 from 2.8% in 2019 as these companies experimented with paying lower fees to trim costs.
RedfinNow, Redfin's iBuying business, has experimented with offering lower commissions to buyers' agents when it sells homes. On more than 70% of its new listings this year, RedfinNow has offered 0.5% less to the buyer's agent than it has historically, according to RedfinNow Vice President Jason Aleem.
"So far, offering a lower commission has not impacted our ability to attract buyers and sell homes for top dollar. Paying lower commissions means we can make even stronger offers to homeowners who request a cash offer from RedfinNow," Aleem said. "We're excited to share this strategy with our brokerage clients, who can hopefully save a chunk of change when they sell their home with a local Redfin agent."
In many of the top iBuyer markets last year, iBuyers paid lower commissions to buyers' agents than individual sellers did. In Phoenix, iBuyers paid 2.6% on average, while individual sellers paid 2.8%. When the DOJ settlement goes into effect and sellers can see what other sellers—including iBuyers—are paying in commissions, many of them may opt to pay a lower fee as well.
"iBuyers may have started the trend of offering lower commissions, but other sellers will follow," said Sabrina Archolecas, an asset manager for RedfinNow in Texas.
Commission Summary By Metro Area 50 largest metros by number of home sales in 2020. Data* represents all homes sold in a given metro, including those sold by iBuyers and homebuilders.
Average Commission Rate Sellers Offered to Buyers' Agents (2020)
Share of Sellers Offering Commission of 3% or More to Buyers' Agents (2012)
Share of Sellers Offering Commission of 3% or More to Buyers' Agents (2020)
About Redfin Redfin (www.redfin.com) is a technology-powered residential real estate company, redefining real estate in the consumer's favor in a commission-driven industry. We do this by integrating every step of the home buying and selling process and pairing our own agents with our own technology, creating a service that is faster, better and costs less. We offer brokerage, iBuying, mortgage, and title services, and we also run the country's #1 nationwide brokerage website, offering a host of online tools to consumers, including the Redfin Estimate. We represent people buying and selling homes in over 90 markets in the United States and Canada. Since our launch in 2006, we have saved our customers over $800 million and we've helped them buy or sell more than 235,000 homes worth more than $115 billion.
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email [email protected]. To view Redfin's press center, click here.