Why Americans Pay Higher Real Estate Commissions Than the Rest of the World: Explained and What’s Changing

The cost of real estate commissions in the U.S. has long been a point of contention for buyers and sellers alike. With commissions typically ranging from 5% to 6% of the purchase price, Americans pay significantly more than those in other countries where rates can be as low as half of what is paid in the U.S.

One of the reasons for the higher commissions in the U.S. is the involvement of two brokers in a real estate transaction — one representing the seller and the other representing the buyer. This dual representation often leads to higher commission rates as the seller’s broker charges 6% and splits the commission with the buyer’s broker. In contrast, in other countries, having an agent represent the buyer is rare, keeping the commission lower.

Another contributing factor to the high real estate commissions in the U.S. is the influence of the National Association of Realtors trade association. This powerful organization, to which most real estate agents belong, dictates that listing brokers marketing their listings on the Multiple Listing Service must offer compensation to cooperating brokers, typically the buyers’ agents. This practice has traditionally been paid for by the sellers.

However, change may be on the horizon as a $418 million settlement was approved between the National Association of Realtors and a group of home sellers who sued over commission rules. This agreement, if approved, would prohibit listing brokers from including cooperating broker compensation in the MLS. Additionally, brokers working with buyers would be required to have written contracts with them. This shift could lead to buyers being responsible for paying their own agents, potentially resulting in lower overall commissions.

The expected effective date for these changes is September, and while they may not bring U.S. real estate commissions in line with the rest of the world, they are a step towards reducing the high costs Americans pay. Stay tuned for updates as the real estate landscape continues to evolve.