Lowering Commissions Can Slow Home Sales

Real estate agents steer buyers away from properties that pay less than local going rates

Based on the research of John Hatfield

In 2024, the National Association of Realtors paid $418 million to settle an antitrust lawsuit. Part of the settlement gives homebuyers more leverage over their agents’ compensation, potentially lowering the cost of buying a home.

In America, a homebuyer’s agent is typically paid by the home seller, who sets the commission as a percentage of the purchase price when the house is listed. A buyer’s agent knows how much they will get paid, depending on which home their client purchases.

New research from Texas McCombs shows why more flexible compensation can benefit sellers as well as buyers. John Hatfield, professor of finance, finds that when properties offer lower commissions to buyer agents, those agents tend to steer their clients away from looking at them. 

Such properties take a third longer to sell than the average listing and are more likely to go unsold. Because of that threat, he says, “Sellers are highly incentivized to go ahead and offer very high compensation to buyer agents.”

Steering helps to explain why U.S. agents earn higher commissions — 5% to 6% on average — than those in other countries, Hatfield adds.

“In the United Kingdom, a typical deal will happen at 1.5% or 2% of the purchase price of the house,” he says. “So, it could be much lower than it is here.”

Lower Commissions, Slower Sales

Both anecdotes and localized studies have previously pointed to the existence of steering. But Hatfield’s study presents the first systematic, nationwide evidence.

With Jordan Barry of the University of Southern California Gould School of Law and Will Fried, former data scientist at REX Real Estate, he analyzed 265,000 listings in 30 markets across the country. Dated from June 2021 to February 2022, the listings included commissions offered to buyers’ agents.

For each market, the researchers calculated the going commission rate. They then broke properties into four groups, depending on how they compared with the going rates. In Austin, for example, the going rate was 3% for buyers’ agents, while the lowest group was below 2%.

He found that the lower the commission, the harder it was to sell the house:

• Houses with the lowest commissions were 51% less likely to sell at all than those with commissions at the going rate.
• Nationwide, houses in the lowest group got 8% fewer page views on the real estate brokerage website Redfin than those in the highest group, with those in between getting 4% fewer views. Fewer views indicate less interest among buyers.
• The lowest group took 33% longer to sell than the highest group, while in-between houses took 15% to 17% longer.

That’s strong evidence of steering, Hatfield says. “A seller offering a lower commission rate to buyer agents should be prepared to see fewer potential buyers.”

Buyers Can Negotiate

Such steering harms buyers, who may miss out on seeing potential dream houses. But it also puts sellers in a bind, he points out.

“If you offer a rate that is below the going rate, your house will take longer to sell, and it might not sell at all,” he says. “For most sellers, that’s a very precarious position to be in.”

He hopes that the NAR settlement will benefit both sides. Buyers, he says, should be aware that they can now drive a bargain with their agents.

“You should try to write a contract with them before you go out looking for houses,” he says. “That contract should be very particular about how your real estate agent is getting paid.”

For example, a contract could specify that if a seller pays more than a 2% commission to the buyer’s agent, the agent will rebate the extra money to the buyer.

“Think of it as like negotiating when you’re buying a car,” Hatfield advises. “You don’t simply take the sticker price as a given. You negotiate with the car salesman to reduce that price. If you don’t like the prices one is offering, you can go look for another.”

“Et Tu, Agent? Commission-Based Steering in Residential Real Estate” is published in Iowa Law Review.

Story by Steve Brooks and Judie Kinonen