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One of the primary changes instituted by the National Association of Realtors’ nationwide antitrust settlement may end up having no effect on commission rates, according to an analysis by the Federal Reserve released this week.
The analysis, “Commissions and Omissions: Trends in Real Estate Broker Compensation,” examined commission rates advertised to buyers’ agents in a dataset of real estate listings from CoreLogic covering about half of properties listed nationwide from 1995 to 2023.
The researchers also used the CoreLogic House Price Index and average resale prices from CoreLogic Market Trends to look at the relationship between commissions and home prices and gathered data on buyer representation agreements and rebate bans from state legislative archives.
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Buyer representation agreements lay out buyer and agent responsibilities, agency representation and agent compensation details. They are required by 15 states, before and independent of the NAR settlement, which requires buyer agents to sign agreements with buyers they are working with before showing them a home.
The study’s authors, Rupkatha Banerjee and Andrew Paciorek, found that commission rates have come down a bit nationally over the past two decades, from an average of about 3 percent in the late 1990s to about 2.7 percent in 2023. There also appears to be slightly more variation: In 2002, commissions largely clustered at 3 percent, while 20 years later, there was more of a spread, with more 2.5 percent and 2 percent rates.
“The highest bar is still at 3, suggesting that the industry norm of the 6 percent total commission paid to buyer and seller agents persists to some extent, at least under the usual assumption that the buyer and seller agents split commissions equally,” the researchers wrote.
“This persistence may be explained by steering and how poorly low-commission properties fare. Low commission listings stay on the market for longer and are less likely to sell,” they said, citing a 2019 study.
“Brokerage firms that offer low commissions are less likely to obtain cooperation from agents from larger firms, who make up the majority of the real estate market,” they added, citing a 2017 study.
“Thus, they are unable to compete with full-commission brokerage agencies.”
The researchers found that median home prices have nearly doubled since 1995 and that, when taking into account home prices, the downward trend in commission rates goes away.
“The variation in rates across metropolitan areas is negatively correlated with house prices, and we find that controlling for house prices in a panel regression eliminates the downward time trend,” the researchers wrote.
“Moreover, the magnitude of the correlation between house prices and commission rates implies that rising house prices could explain more than half of the aggregate trend.”
They theorized that the increase in home prices insulated agents from the effects of lower rates.
“When house prices are higher relative to consumer prices or prevailing incomes, real estate agents may be more willing to work for lower commission rates, since the higher selling price offsets the lower rate,” the researchers wrote.
The researchers also looked at commission rates in the years before and after buyer representation agreements and rebate bans were put in place in different state. They controlled for home prices to isolate the effects of the policies.
“Interestingly, we find no material or statistically significant effects of buyer representation agreement requirements or buyer rebate bans on advertised commission rates, suggesting that changes in these policies might not have a material effect,” the researchers wrote.
The researchers acknowledge that the NAR settlement includes a new provision not present in the states analyzed: The prohibition on advertising commission rates to buyers’ agents through the multiple listing service. This, they said, “could mitigate the issues of steering and collusion” and “lead to more substantial changes to business models and agent commissions going forward.”
Still, they noted that listing agents had found workarounds around the settlement’s prohibition and that NAR had added an option to delay marketing listings on top of its Clear Cooperation Policy (CCP), which requires listing brokers to submit a listing to the MLS within one business day of publicly marketing it.
“[P]ress reports suggest that sellers’ agents have found ways of sharing information on commission rate offers outside of the MLS,” they wrote.
“In addition, the NAR has relaxed its Clear Cooperation Policy, leaving more freedom for listing agents to forego or delay listing a property on the MLS in the first place. These sorts of adaptations make it difficult to predict the long-run effects of the settlement.”
