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Tuesday, May 28, 2024
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McAllen
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Homebuying: Real Estate Agent’s Financial Split

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In most developed countries, total commissions/fees are a much lower percentage of the purchase than in the US, and a major point of contention was that buyers’ agents were earning 2.5% to 3% of the purchase price irrespective of their involvement. Image for illustration purposes
In most developed countries, total commissions/fees are a much lower percentage of the purchase than in the US, and a major point of contention was that buyers’ agents were earning 2.5% to 3% of the purchase price irrespective of their involvement. Image for illustration purposes
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Dr. M. Ray Perryman President and Chief Executive Officer of The Perryman Group

The National Association of Realtors (NAR) recently settled a major federal lawsuit. The primary issue was the compensation to buyers’ real estate agents required for homes listed on NAR’s multiple-listing services (MLS). While there was the potential for negotiation, most transactions tended to play out according to the default arrangement, with the buyers’ and sellers’ agents splitting a 6% commission. 

In most developed countries, total commissions/fees are a much lower percentage of the purchase than in the US, and a major point of contention was that buyers’ agents were earning 2.5% to 3% of the purchase price irrespective of their involvement. Buyers finding a home largely through their own research with only minimal use of an agent’s services nonetheless paid the full commission (through higher sales prices to cover the costs, which were technically borne by the seller). With home prices rising rapidly over the past few years (though moderating in some areas now), the compensation to agents climbed proportionately. There will undoubtedly be some changes, as the settlement ended this traditional approach (in addition to a substantial monetary payment). 

Several situations may arise going forward. If buyers decide to pay only minimal fees or forego an agent entirely, they may save some money. However, they would also have to locate desirable properties, negotiate with sellers, deal with inspections and repairs, and go it alone on reviewing contracts and other legal documents (or perhaps hire an attorney). 

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Effective buyers’ agents may possess negotiating skills and knowledge of the market to secure better pricing and selections which could more than justify their commissions. They may also help protect purchasers by insisting on rigorous inspections or facilitating needed repairs prior to closing. Agents may be particularly important to inexperienced buyers or those without the necessary skillsets to effectively navigate the process. 

Buyers will have to decide what services they need and how much they are willing to pay. Agents will need to develop a variety of options to meet the market and support their fees/commissions. 

We may also see the emergence of new business models which are ultimately beneficial to buyers, sellers, and agents, such as specific services offered at flat fees or hourly rates or other innovations to add value. Since a home is the most expensive asset that most families purchase, many will view a full-service agent as well worth the investment. 

There are a variety of questions yet to be answered, but real estate agents who offer a valuable service to buyers will be able to navigate a path toward appropriate compensation. The old patterns may be broken, but new and more flexible ones may offer their own advantages. Such is the nature of a market economy. Stay safe!

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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.

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