For a long time, buying and selling a home in the U.S. generally went like this: The seller would pay a commission that would be split by the buyer's and seller's agents, often totaling 5% to 6% of the sales price.
The predictability of that structure came at a cost: big fees to the agents on every transaction. At a time of high home prices, agent fees can add up to tens of thousands of dollars on just one sale.
For people like Jim Xiao, that was too much. "It seemed like the realtor fees had always been essentially an expected, fixed amount. When you tried to negotiate, you were basically just told, nope, that's our rate," he says.
But the rules of the game have changed, after the powerful National Association of Realtors settled a lawsuit in August, agreeing to new policies about how agents are compensated. The lawsuit was brought by a group of home sellers in Missouri who argued the association's rules forced them to pay excessive fees.
Xiao says he experienced firsthand the frustrations of the old rules in 2023 when he helped his parents buy two homes in Augusta, Ga., without a buyer's agent. The homes were new construction, and Xiao tried to negotiate a credit equal to the 2.5% that usually went to the buyer's agent, since he wasn't using one. But to no avail 鈥� the listing agent pocketed the full 5% commission.
Xiao is a lawyer, and he believes the commission system gives the buyer's agent the wrong incentive: The higher the price, the more money they make. "That just seems totally backwards," Xiao says. "Your agent should be representing you and trying to help you get the best deal possible."
So when it came time to sell his condo and buy a new home for his family last year, Xiao decided to do things differently. He found an agent who would accept a 1.5% commission to sell his condo, and a flat $10,000 to help him buy a new home.
New rules could shake up realtors' grip on commission structure
Agreements like Xiao's could become more common as the new rules usher in a few big changes nationwide.
Among them: Agents must inform buyers and sellers that their fees are negotiable.
Buyers must sign an agreement with their agent establishing how their agent will be paid 鈥� including the possibility that if the seller won't pay the buyer's agent, the buyer will do so.
And finally, offers of agent compensation can no longer appear on the online databases known as multiple listing services, or MLS, that are used to list homes.
These new rules have created an opening for brokerages that charge a flat fee.
"Home buyers and sellers almost feel like they're trapped into using agents, rather than they're hiring agents at a reasonable fee," says Rob Luecke, CEO of ShopProp Realty, a flat-fee brokerage that operates in nine states.
Luecke says his goal is to eliminate commissions 鈥� or at least get them a lot lower, "and put the power back into the home buyer and sellers' spot where it really needs to be."
For high-end homes, the potential savings are eye-popping. ShopProp represented a buyer who purchased a $10.2 million home in the country's most expensive zip code, in Atherton, Calif.
The buyer's agent might typically pocket a commission of 2.5%, or $255