Are Real Estate Agents and Companies Hiding Information About Commissions?

Most consumers generally know how much interest their credit card companies charge or the interest rate of their home mortgages. Both are examples of industries that clearly and easily advertise rates.

The Consumer Federation of America (CFA) recently released a report - Hidden Real Estate Commissions: Consumer Costs and Improved Transparency, and concluded that real estate agents and brokers intentionally make it difficult for consumers to learn about commissions rates they charge on home sales.  

The comprehensive study found that most traditional firms and agents:

  • Do not advertise their commissions
  • Do not include information about their commissions on their websites
  • Rarely mention that any commissions are charged on their websites
  • Fail to provide information about full commission levels during general phone inquiries
  • Do not quickly reply to a prospective seller about the seller’s costs, even in response to a direct query

This obscurity explains why the vast majority of sellers and buyers are not informed about commission rates. Most don’t know that total commission levels range from five to six percent of the sale price of the property and is paid entirely by the seller.  On a $400,000 home, this amounts to upwards of $24,000 in commission, which is not a small sum of money.

The average Realtor(R) commission in the US is 5.5% and is one of the highest rates in the world. To make matters more puzzling, the US commission rate is not set by the market, but rather, has been entrenched as the norm by real estate agents themselves and their governing body, the National Association of Realtors (NAR).  

Real estate commission rates are not advertised by most agents and brokers, nor are rates competitive among real estate agencies. How can this be? The real estate industry marches to its own drum beat and most home sellers and buyers don’t know what else to do but follow along.

While tech-enabled real estate startups, like Home Bay, aim to make the market more competitive by offering a far more efficient solution that also charges a lower commission, the traditional commission structure prevails. Knowledge IS power, and specifically in real estate, knowledge also translate to dollars. We, at Home Bay, value transparency and efficiency, both to the benefit our customers.

To see the full list of important takeaways from the referenced report, check out this article by AZ Business Magazine.

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