The last month of 2020 should’ve been a happy time for real-estate agents. The catastrophe of the pandemic had turned into an improbable housing-market boom, as home sales reached 14-year highs. But instead of celebrating their unexpectedly prosperous year, a lot of agents were pissed.
In private chats and message boards, they complained about new rules that would publicly expose their commissions. For homebuyers, the amount an agent gets paid has historically been out of sight, out of mind. But as part of a November 2020 settlement between the Department of Justice and the industry’s top trade group, the National Association of Realtors, real-estate search sites like Zillow and Redfin would soon start publicizing exactly how much buyers’ agents stood to collect on nearly every home for sale in America.
Among real-estate agents, no topic is more sensitive than their commissions. In private comments at the time, screenshots of which were shared with Business Insider, agents revealed just how squeamish they were.
“It’s no one’s business,” one disgruntled agent commented in a private Facebook group. “Do we go around asking people how much they make?”
“Someone has it in for real estate,” another responded.
In the middle of the vitriol, a brave agent — whom I’ll call Julie — applauded the move, suggesting it could help rid the industry of one of its dirty secrets: a sly tactic called steering.
Because of America’s convoluted home-sales system, the seller typically pays out agents on both sides of a transaction. The commission is baked into the home’s final price — it’s usually between 5% and 6% of the total — and split evenly between the buyer’s and seller’s agents. Technically, the seller can promise as little as $0 to the buyer’s agent; after all, why pay for someone you didn’t hire? But there’s a catch: Offer less than the going rate, and you risk getting the cold shoulder from other brokers and fewer eyeballs on your listing. Agents might steer their clients toward the homes that offer the standard commission and away from ones that don’t. The practice screws over both sellers, who might miss out on offers, and buyers, who might unknowingly pass over their dream home.
“Whether or not people admit it, steering due to commission rate definitely happens and it is incredibly wrong,” Julie wrote in a Facebook comment.
“Wrong,” someone else replied, “or the real world?”
Steering is notoriously difficult to prove or quantify, but evidence of the practice can be found littered throughout the housing market. The extent of steering is a main point of contention in the multibillion-dollar class-action lawsuits over agent commissions; the plaintiffs say the threat of steering is a big reason commissions have barely budged over the years. Wendy Gilch, a consumer advocate who focuses on transparency in real estate with her company, Selling Later, likened this moment to “a reset button” for the industry.
“It’s a great opportunity to start over,” Gilch told me.
It’s hard to know how much steering actually happens, mostly because a buyer might never know they were a victim in the first place.
The first article in NAR’s code of ethics says Realtors must “protect and promote the interests of their client,” and the organization’s official position can be summed up simply: Steering doesn’t exist. It’s a myth, the argument goes, created by those who want to dismantle the system and force buyers and sellers to pay their agents separately. But multiple agents told me there are all kinds of ways shady practitioners try to skirt the rules.
For instance, some agents might filter out listings with subpar commissions before passing along options to their clients. Or if they do show their client a house, they could insinuate that a low commission is a warning sign that the seller is hard to deal with or invent reasons the house isn’t a good fit. They could also caution that if they’re not getting their desired commission from the seller, they’ll expect the buyer to make up the difference. Agents are within their rights to do that, but it can discourage a cash-strapped buyer from pursuing a home.
“All a Realtor has to do is make a face about a house and they put a question in the buyer’s mind as to whether or not it would be wise to put an offer in on a house,” Doug Miller, a real-estate attorney in Minnesota, said in an email.
Critics say the stickiness of the going commission rate is evidence of steering’s ubiquity. The cut that’s split between agents on both sides of the deal has basically fluctuated between 5% and 6% of the total sale price since at least 1992, despite the widespread adoption of home-search technology, an increase in the number of agents, and huge differences in agents’ experience and skill. In recent years, greater numbers of agents have been fighting for clients, while technology has streamlined their jobs and made it possible for anyone to look up homes online. In a competitive market, critics say, you’d expect the price of agents’ services to come down. But data from RealTrends indicates that in 2021, even as home prices were skyrocketing and agents were signing up en masse, the typical commission rate actually went up.
All a Realtor has to do is make a face about a house and they put a question in the buyer’s mind as to whether or not it would be wise to put an offer in.
A recent analysis of roughly 265,000 listings on Redfin in 34 large metropolitan areas found that, in a typical market, more than 85% of listings offered the two most common commission rates for buyers’ agents. In Austin, Houston, and Kansas City, Missouri, more than 95% of listings offered a commission to the buyer’s agent of 3% or 2.5%.
The authors of the study wondered whether buyers’ agents might forward fewer low-commission listings to their clients, which would mean fewer page views on sites like Zillow and Redfin. They found that, all else being equal, low-commission listings received significantly fewer page views on Redfin — even the homes that offered agent payments just slightly below the going rate got fewer eyeballs. Homes with lower buyer-agent commissions also took longer to sell and were less likely to sell at all than those offering the standard rate.
Agents I talked with stressed that there are plenty of honest, hardworking representatives who just want the best for their clients. I believe them. But there are also just lots of agents out there, and the bar for entry into the industry is shockingly low. In most states, getting a license to work as a real-estate agent requires paying a few hundred dollars, doing several weeks’ worth of coursework, and passing a multiple-choice test. It’s no surprise, then, that there are some 1.5 million NAR members, or more than two Realtors for every available home on the market. And that doesn’t even count all the agents who aren’t members of the organization — there are about 1.3 million licensees in the US who don’t belong to the group, meaning they can’t use the Realtor title and don’t subscribe to its code of ethics.
The low standards and lack of oversight can create hazardous conditions for buyers and sellers. A few years ago, the now defunct discount brokerage Rex Real Estate released recordings of roughly 600 calls in which other agents vowed to avoid properties listed by Rex that offered less-than-satisfactory commissions. In one call, court documents say, a Keller Williams agent told a Rex representative: “If you are not offering any buyer’s commission, then that’s fine. I’m not going to show that [property], and you’re probably going to run into the same issue with everybody here.” Another ReMax agent said, “I’m not going to show a listing where I’m not guaranteed a commission.”
Brendon Bowers, a former real-estate agent who spent a couple of years working as a branch manager for Rex in the Phoenix market, told me he encountered this sort of thing all the time. He said buyers’ agents might call and say, “‘Why is there no buyer’s commission?” or “Why do I have to negotiate this? Nevermind, we’re just going to go on to the next one.” Steering, he added, is “just flat-out a part of real estate.”
A spokesperson for the NAR told me that Rex was cherry-picking from thousands of calls and that these agents may have eventually shown their clients the homes, however begrudgingly. But even the mere threat of steering is enough to keep commissions from dropping, Stephen Brobeck, a senior fellow at the Consumer Federation of America, told me. The problem isn’t that steering is rampant, Brobeck said; if most listings in a market already offer uniform commission rates, there’s no need for an agent to steer their client in the first place. It’s the fear of steering that maintains the system. A seller might hear of examples of steering, or get a warning from their agent of the risks involved in offering substandard commissions, and decide it’s worth it just to promise the going rate. After all, everyone else is doing it.
Class-action plaintiffs, the Consumer Federation of America, and the Department of Justice have proposed something called decoupling, in which buyers and sellers just pay their agents separately, as a way to get rid of steering. The DOJ has argued that as long as sellers pay a commission to the buyer’s agents, they’ll be pressured to promise the going rate. In the proposed alternative, sellers would promise a commission only to their agent. For buyers, it would be more complicated; they’d have to figure out how to pay their agent directly, and how much. They could either pay the broker out of pocket or arrange to get a rebate from the seller once the deal closes.
Such changes could come sooner rather than later. With commissions under heightened scrutiny, more agents are getting buyers to sign buyer-broker representation contracts laying out the rate the agent expects to get paid, regardless of what the seller offers in the listing. If an agent wants 3% of the sale price and the house you buy provides only 2%, you might have to pick up the difference. If you’re working with a good agent, that will probably feel worth it. But if sellers stop offering commissions altogether, buyers might have to make some tough choices. Many more buyers might choose to go it alone rather than pay out of pocket for an agent’s services. Or they could pay their agents a flat fee or an hourly rate instead of a commission, though it’s unclear how many agents would take that deal. Buyers might also start writing offers on homes that are contingent on making sure their agent gets paid: “I’ll offer you $400,000 for your house, but you’ve got to give me back $12,000 so I can cut a check to my broker.” But there’s still no guarantee that sellers would agree to that, especially in a hot market like the one we’ve seen over the past few years.
Nobody expects agents to work for free, but the near uniformity of commission rates is strong evidence that buyers and sellers aren’t bargaining nearly as much as they should be.
The NAR says decoupling would only heighten the inequalities in the housing market. Rich people could afford to get an agent and enjoy all the benefits that come with one, while poorer buyers might be left on their own. Others in favor of decoupling say the industry would be forced to get creative to ensure that as many buyers as possible could still access agents. Meanwhile, buyers and sellers would negotiate harder and maybe save thousands of dollars on a sale.
Nobody expects agents to work for free, but the near uniformity of commission rates is strong evidence that buyers and sellers aren’t bargaining nearly as much as they should be. If you’re a buyer, there are steps you can take to avoid falling victim to steering. Be wary of relying too much on an agent to feed you listings; it’s worth doing your own research, too. On sites like Zillow and Redfin, you can often see the commission being offered to the buyer’s agent. If a listing is offering less than what’s typical in your area and your agent is acting weird about it, that might be a red flag. There are lots of willing brokers out there; if you suspect steering, agents told me, you’ve got plenty of options for a second opinion.
Again, there are good, honest agents out there who deserve every penny of their commission. But you don’t have to talk to many buyers to realize that not everyone meets that standard.
I recently called up Julie, the agent in the private Facebook group who spoke up about steering a few years ago. She asked that I not use her real name because she didn’t want to be drawn into the controversy over commissions and all the lawsuits the NAR is facing; if things were tense back in 2020, they’ve only gotten more heated since then. But her feelings about the issue hadn’t changed.
“I am responsible for taking care of my clients to the best of my ability,” she told me. “I tell my clients it’s not their job to provide for me. It’s my job to take care of them.”
James Rodriguez is a senior reporter on Business Insider’s Discourse team.
