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The U.S. real estate market faces significant changes following a ruling that challenges the long-standing tradition of sellers paying commissions for both their listing agent and the buyer’s agent. A federal jury determined that the National Association of Realtors (NAR) and several large brokerages engaged in practices that artificially inflated commissions. These practices included structuring fees that required sellers to cover the buyer’s agent commission, typically around 2-3% of the home’s sale price.
This decision opened the door to an overhaul in how real estate commissions are paid, raising the question of whether sellers should still shoulder the cost of the buyer’s agent. While some may see this as an opportunity to shift this expense to buyers, there are strong reasons sellers should carefully consider continuing to cover these fees.
The Buyer’s Agent Role: More Critical Than EverThe Buyer’s Agent Role: More Critical Than Ever
Real estate agents, particularly buyer’s agents, are often underappreciated for their critical role in shepherding deals through to completion. In a post-NAR world, buyers may be more selective about whether or not to employ an agent if they have to foot the bill directly. However, agents remain invaluable guides through property assessments, negotiations, financing, and closing processes.
For sellers, this means that by offering to cover the buyer’s agent commission, you ensure that prospective buyers feel confident in engaging an agent to represent them fully. Buyers without professional representation may make more errors, demand more concessions, or require more time to close a deal—adding friction to the process and, ultimately, risking the sale itself.
Research supports this. According to a study by the National Bureau of Economic Research (NBER), homes sold with the help of buyer’s agents typically sell faster and at higher prices than those without. Agents provide critical market insights and help to smooth negotiations, ensuring the process is quicker and more efficient.
Technically, the Buyer Pays the Commission AnywayTechnically, the Buyer Pays the Commission Anyway
The buyer directly funds the buyer’s agent commission, as it’s typically included in the home’s purchase price, even under the previous system. When you, as the seller, agree to pay the buyer’s agent commission, you’re not paying out of pocket; instead, you’re using proceeds from the sale, which the buyer directly provides.
This means the buyer is, in effect, financing that commission through their mortgage, rolling it into their loan along with the cost of the property. From a cash flow perspective, the seller receives the buyer’s funds and pays the agent commissions from those proceeds, not personal savings. The seller’s ability to roll the commission cost into the transaction itself—and the buyer’s mortgage—means that both parties benefit from a streamlined process where neither has to worry about additional, out-of-pocket expenses at closing.
This arrangement makes it easier for the buyer to engage with a representative without the upfront financial burden, making them more likely to choose your property over others.
Reducing Friction in the Sales ProcessReducing Friction in the Sales Process
A home sale is often an emotional and complex transaction. The fewer obstacles, the smoother the process becomes for everyone involved. Armed with market expertise, negotiation skills, and transactional knowledge, a buyer’s agent helps buyers navigate both the buying process and the price negotiations. This can lead to more realistic offers and a quicker, less contentious sale.
By deciding to continue paying the buyer’s agent commission, sellers signal that they are serious, motivated, and working to reduce potential hurdles. In contrast, if a seller refuses to pay this commission, buyers may look at properties where the seller is more amenable to traditional arrangements—or attempt to negotiate the price lower, knowing they will have to cover additional fees out of pocket.
A Larger Buyer Pool = Better Sales PricesA Larger Buyer Pool = Better Sales Prices
Maximizing the final sale price should be at the core of any seller’s decision. Historically, home sales with buyer’s agents tend to close at higher prices because those agents typically bring qualified, informed buyers to the table. This has a simple economic effect: the more buyers you attract to your property, the higher the chance of competitive bidding, which can drive up your sales price.
If you force buyers to absorb the cost of their agent’s commission, you shrink your potential buyer pool. Many first-time or middle-market buyers, who are already grappling with rising interest rates and home prices, may pass over your property if hiring an agent becomes a financial burden. This is a dangerous gamble for sellers, especially in a cooling market. Even small reductions in the number of interested buyers can reduce competition and, ultimately, your final sale price.
A Consumer Federation of America study found that homes sold with a buyer’s agent averaged 5-6% higher sale prices than those sold without representation. This highlights the potential financial benefits of involving agents in your transaction.
A Challenging Affordability LandscapeA Challenging Affordability Landscape
Housing affordability is at historically low levels. The median monthly mortgage payment to gross income ratio has soared to 30%, marking the highest point since 1985. This means that Americans are now spending nearly one-third of their income on mortgage payments, and this ratio has jumped by about 10 percentage points over the last three years as mortgage rates have more than doubled. Additionally, the median down payment to income ratio has reached approximately 100%, exceeding the levels seen during the 2006 housing bubble.
This worsening affordability makes it even more important for sellers to help smooth the homebuying process for potential buyers. By continuing to pay the buyer’s agent commission, sellers can ease the financial burden on buyers, who are already grappling with higher mortgage rates and down payments. A buyer who doesn’t have to cover their agent’s fee is more likely to engage professional representation, which benefits both sides by ensuring a smoother, quicker transaction.
Moreover, since buyers are already stretched thin if they have to take on additional costs—such as paying for their agent—they may skip properties where they would need to cover that fee themselves. This could shrink your buyer pool significantly, especially among first-time or middle-market buyers who are particularly price-sensitive in this high-cost environment. By covering the commission, sellers keep their property attractive to a wider range of buyers, which increases competition and can lead to a higher final sale price.
In a market where affordability still needs to improve, ensuring buyers can easily engage agents without additional financial strain becomes a competitive advantage for sellers, ultimately benefiting both parties in a challenging economic environment.
The Shifting Balance of PowerThe Shifting Balance of Power
Another reason to consider continuing with the current model is the power dynamic between sellers and buyers. In markets where sellers hold an upper hand, such as during a housing shortage or in high-demand urban centers, sellers may feel emboldened to push more costs onto buyers. But in stabilizing or softening markets—where interest rates are rising, and affordability is a growing issue—the balance of power shifts to buyers.
Price-sensitive buyers in these markets often look for properties where their agent’s costs are already covered. By covering these costs, you gain a competitive edge and make your property stand out in a crowded market.
The Psychological FactorThe Psychological Factor
Home buying is as much an emotional process as a financial one. The buyer’s agent is often viewed as an advocate, representing their best interests in what could be the most significant financial decision of their lives. When a seller offers to pay the buyer’s agent commission, it can foster goodwill and trust between both parties.
Conversely, if a seller refuses to pay, some buyers might interpret this as a signal that the seller is brutal or uncompromising. While buyers can undoubtedly negotiate for credits or price reductions to cover their agent’s fees, this could start the transaction on a contentious note.
A Pragmatic Approach in a Transitioning MarketA Pragmatic Approach in a Transitioning Market
With recent changes in the real estate market, buyers must sign a buyer’s agent agreement before viewing properties, and states like New York have already decoupled the commission. However, in New York City, many sellers still opt to cover the buyer’s agent fee to stay competitive.
However, until the market settles into a new standard, home sellers should carefully weigh the benefits of covering the buyer’s agent commission. Doing so simplifies the process and creates a wider pool of potential buyers, which could result in a higher sale price. With so much uncertainty, sellers would be wise to stick with what works—at least for now.
Final ThoughtsFinal Thoughts
The NAR ruling has created a new real estate landscape with shifting traditional norms surrounding commissions. As sellers consider whether to pass on the cost of the buyer’s agent commission to buyers, they should carefully weigh the pros and cons. Covering the buyer’s agent commission can reduce friction in the sales process, attract more interested buyers, and potentially lead to a higher final sale price. Sellers must also remember that buyers effectively finance the commission as part of the purchase price, which gets rolled into their mortgage. This means sellers don’t pay the commission out of pocket, allowing for a smoother transaction.
Ultimately, sellers should base their decisions on specific market conditions and financial goals. As the market evolves, offering to pay the buyer’s agent commission may give sellers the competitive edge needed to close the deal smoothly. Informed decisions will help sellers navigate the complexities of the market while recognizing the critical role that buyer agents continue to play.