Higher Commissions

by | Feb 28, 2025

The NAR Settlement was supposed to decrease real estate commissions, but they’re actually higher now than in the third quarter of last year. Ok, to be fair, they are .001% higher… so really not that much. However, this would seem like nothing if it weren’t for the fact that the whole NAR Settlement was about dramatically lowering real estate commissions by theoretically making them more competitive. According to Redfin statistics, real estate commissions are now at 2.37%, compared to 2.36% in Q3 of 2024. So why have commissions remained essentially the same?

Spoiler alert: I have no idea why the average commission hasn’t changed… but as you might imagine, that’s not going to stop me from guessing!

In my opinion, commissions haven’t changed in part because the real estate market is so strange right now and perhaps scary to many sellers and buyers. That’s because, no matter what you think about this real estate market, you are wrong; buyers think it’s a seller’s market, and sellers think it’s a buyer’s market. The Wall Street Journal describes current real estate sales as “frozen.”

In part, this is because this real estate market is literally competing with itself. Perhaps it would be more accurate to say that it’s competing with its younger, hotter self. As you no doubt are aware, more than 80% of homeowners have mortgage rates below 6%, so they aren’t planning on selling anytime soon, according to Realtor.com. Of course, this means that these homeowners also aren’t buying. Thus, there is a very limited number of homes on the market, which usually would mean that a ton of buyers would be competing with one another, except that the average home is taking almost two months to sell, according to Redfin. This is the longest average time on the market since 2020.

It seems that sellers are also giving in to romantic nostalgia about when the real estate market was hotter. As reporter Nicole Friedman describes in The Wall Street Journal, “There’s this standoff going on where sellers are still remembering what their neighbor sold for a couple of years ago and saying, “I don’t want less than that.” And so sellers are pretty reluctant to cut their prices unless they really have to sell.”

This is just a guess, but the average home for sale today is probably owned by someone far wealthier than the average home for sale five years ago. This is because buying a house is much more expensive today than it was five years ago. As a result, there’s a huge financial incentive to not buy, and therefore a huge incentive to not sell the house you’re currently in. Thus, homes for sale today may be owned by people who are not concerned about the higher cost of borrowing money to purchase a new home. If you’re not concerned about higher borrowing costs, it’s much more likely that you’re paying cash. So not only are there far fewer homes for sale, but I would guess that a much larger percentage of those homes are listed by people who are paying cash for their next home, or are otherwise not concerned about how expensive borrowing is. This strange, static market selects for unique sellers; you have to be very motivated, very wealthy, or maybe very strange if you want to list your property right now. Years ago, when mortgage rates had been relatively stable for a long time, the decision to sell could be much breezier, like “oh, I just wanted a bigger place.” Now, you have to break out of the gravitational force of your adorably cheap mortgage rate by earning significantly more money.

Since this average home seller is very different from years ago, they also are more likely to be able to afford to have their home sit on the market unsold until they get a higher price. This means that, though there are far fewer buyers, there are also some relatively unmotivated sellers. As a side note, being an unmotivated seller is something I truly aspire to

So, how does this relate to commissions? I can confidently say I don’t know… but I wonder if the uncertainty surrounding a frozen real estate market that’s competing with itself from five years ago makes buyers and sellers uneasy, and makes them want to be sure they’re getting the best agent. After all, even in the best of times, 69% of sellers who tried selling without an agent ended up using an agent in the end, according to Zillow statistics. In this strange, icy market when so much money is at stake, buyers and sellers may not want to cut corners when hiring their agent. This doesn’t mean that commissions will not change in the future, but the fact that they have not decreased after the widely publicized settlement is just another odd, counterintuitive real estate mystery. No matter what you think about this market, you are wrong… so be sure to season everything I wrote here with a few grains of salt.

https://www.redfin.com/news/agent-commissions-expensive-affordable-q4-2024/
https://www.newsnationnow.com/business/your-money/real-estate-agent-commissions-unchanged/
https://www.scotsmanguide.com/news/average-broker-compensation-remains-nearly-unchanged-since-nar-settlement/
https://www.realtor.com/news/trends/more-than-80-percent-mortgages-have-rate-below-6/
https://investors.redfin.com/news-events/press-releases/detail/1258/redfin-reports-the-typical-home-is-taking-nearly-2-months
https://thenationaldesk.com/news/americas-news-now/housing-affordability-issues-persist-as-homes-sit-on-the-market-longer-real-estate-mortgage-rates-interest-federal-reserve-mortgage-payments-home-sales
https://blog.onlineed.com/2023/07/06/sell-your-home-for-less/
https://www.tpr.org/economy-and-labor/2025-02-03/its-kind-of-a-frozen-market-home-sales-fell-to-the-lowest-level-in-nearly-30-years-in-2024
https://www.newamericanfunding.com/learning-center/homebuyers/navigating-a-shifting-market-what-buyers-and-sellers-need-to-know-in-early-2025/
https://investors.redfin.com/news-events/press-releases/detail/1268/redfin-reports-housing-supply-is-piling-up-as-home-sellers

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