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Understanding Changes to Real Estate Agent Commissions

When it comes to how Realtors make money, anyone who’s bought or sold a home, or any property for that matter, is usually very aware of the percentage their agent is taking. Any reputable real estate agent will clearly disclose their commission rate, many of which are negotiable, before any papers are signed or transactions have even begun. The keyword here being reputable. Realtor is a trademarked name used by the National Association of Realtors. The word is used to help the general public understand what real estate agents do, which is brokering real estate deals. So, you can usually rest assured that if you’re working with a Realtor, you’re working with a reputable real estate agent.


Realtors typically earn money through commissions on real estate transactions. When they help a client buy or sell a property, they usually receive a percentage of the sale as their commission. The percentage varies but is usually around. 5-6%. In 2024, Phoenix, AZ the average Realtor commission rate is 5.37%., which is split between the buyer’s agent and the seller’s agent. That breaks down to 2.71% average for the listing (seller’s) agent and 2.66% for the buyer’s agent. Other fees can be charged for administrative tasks and marketing.

real estate commission agreement


The commission-based model has been the tradition for residential real estate transactions for years. Real estate agents receive a percentage of the final sales prices as compensation. In residential real estate in Arizona, these amounts are set by the seller and disclosed throughout the multiple listing system (MLS) to ensure transparency and that compensation is available for successful transactions. As with most things though, the real estate world may be in flux. There have been recent policy changes that could cause these commission rules to operate differently than they have in the past.


The Department of Justice filed a lawsuit against the National Association of Realtors in 2022, citing that this compensation structure resulted in higher costs for home sellers and buyers. Additionally, the lawsuit claimed that these rules stifled innovation and prevented new business models from emerging real estate markets. Set to be heard this summer, unless a judge overturns the verdict, compensation will no longer be displayed within the Multiple Listing System, and the buyers will now become responsible for any fees associated with representation.


How Real Estate Agents Get Paid Now

Compensation has always been negotiable, and within 20 years of completing real estate transactions, compensation has always come up at the beginning of each transaction and disclosed. With this possible ruling, that all changes. It becomes the responsibility of consumers to ask their real estate agent about compensation, a compensation that will be decided on in the beginning, whether you choose to work with another agent or not. As a buyer, you must complete a legally binding document with your real estate agent supporting confirmed commission amounts paid for by you, the buyer. The fee agreement may also provide exclusivity to one real estate agent while you look for a home. Again, this means that if at any point you choose to shop around or use more than one real estate agent, you could be on the hook for two commissions in the event of a successful transaction.


How the DOJ Lawsuit May Change Real Estate Agent Compensation

It is too early to tell the impact on homebuyers and home sellers, but I feel sellers and builders will continue to offer compensation, except the word will be changed from "commission" to "concession." The positive thing is that there is a new level of transparency tied into what consumers understand on the front end the fees associated with completing a real estate transaction. Supply, demand, and affordability will continue to create issues for traditional home buyers; some think lower commission amounts will finally allow them to acquire a home, but the affordability issue of home prices goes way past any commission amount, and the buyers that are stuck on commission dollars will continue not to be able to generate results. 


How will this affect you if you want to work with us? 

real estate agent in Scottsdale.

We always disclose compensation amounts to our clients, discuss fees, and do what we can to accommodate clients. We have always stood by these practices and will continue to do so, no matter the court ruling. Nothing is more critical than reputation and public perception, and we will continue to abide by higher standards than the rest of our industry. 


New rules may enhance the general public's transparency and fairness by disclosing compensation amounts upfront. As the real estate landscape continues to evolve, it's crucial for all parties involved to stay informed about regulatory changes and always remember the end goal, a successful transaction, so you complete your objectives and find your place. We're always here if you have any questions.



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