Technology has made transactions of all kinds easier. Buyers and sellers are more easily matched; money can be exchanged completely online; and information is more democratized than ever. All of this raises questions as to why the U.S. gained over 500,000 real estate agents in the last decade, according to RubyHome.””
In most cases, technological advancements have reduced transaction costs and the number of brokers required to facilitate those deals. Sales and purchases can be completed quickly and without as much travel or in-person meetups. Even more notable than the non-monetary benefits is that commission fees for brokers have dropped significantly in response to the increased ease of deal-making, as seen in the stock market.
Technology has equally impacted real estate markets. Websites like Zillow make dream homes and their specs easier to find, and online banking makes mortgage loans easier to apply for — although not necessarily to get approved for. But real estate commission fees have not come down accordingly, and fees have remained at their historical 3% commission per agent — or 6% of the home’s sale price — and there are now 1.5 million licensed agents in the country.
The stickiness of these rates comes even after a $418 million antitrust settlement paid by the National Association of Realtors in March of 2024. In simple terms, NAR paid the settlement because it inflated commission rates by requiring sellers to pay both agents’ fees, leading to overpayments because sellers couldn’t negotiate with the buyer’s agent.
But even after the settlement allows buyers to set their own agents’ fees and opens negotiations, that 5-6% benchmark hasn’t really come down.
The immediate defense of the 3%-per-agent commission is that it’s the rate required for agents to make a living. And currently, that’s true. The costs associated with being a realtor lead the average Texas agent to make under $60,000 per year. But making a living is only half of the equation for finding the appropriate market price — the other half is the value the service provides to the buyer.
Real estate agents do add value by connecting buyers and sellers more meaningfully than a quick online search, and by taking the lead on contracts and negotiations, which can get complicated. But do these services truly warrant a $60,000 bill for the sale of a million-dollar home (which is frighteningly no longer a jarring number)?
Proponents of the NAR lawsuit, myself included, would say no. And saying that doesn’t mean I want real estate agents to take a pay cut, since their salaries are reasonable. What it does mean, however, is that the total revenue of the real estate industry will shrink, and there must be accordingly fewer agents to share that revenue.
When you realize there are 1.5 million NAR members and possibly up to 3 million licensed real estate agents in the United States, you see part of the reason commissions have stayed so high. That many agents for just over 4 million home sales in 2023 means most agents wouldn’t close enough deals to keep the lights on.
While it’s far from the only factor keeping rates high, the most reasonable answer to this commission problem could be to reduce the number of agents in the market, allowing brokers to make fair compensation while customers aren’t victims of inflated commission rates.
