No matter the ups and downs of all-cash offers, waived inspections and bidding wars, if you’ve bought a home in the Seattle area recently, there’s one thing you probably have in common with other buyers: the commission rate your agent made on the deal.
That’s because in the vast majority of Seattle sales, buyers’ agents are making about the same rate. Similar patterns play out in other cities, too, according to a report released this week by the Consumer Federation of America.
The watchdog group says that indicates a lack of competition among real estate agents and bad news for buyers.
But if you’re a homebuyer, consumer advocates say there’s a way to try to gain some leverage: by asking your agent for some money back.
“Why are rates so uniform, when agent services differ in terms of agent experience, skill, effort, workload (and other factors)?” said Stephen Brobeck, a senior fellow at the Consumer Federation of America, an association of nonprofits that scrutinizes various industries including real estate brokerages and insurance companies and published the report.
Brobeck blames “powerful industry norms” and “informal price setting.”
The consumer federation’s criticisms are part of a broader challenge to the industry that now includes a Department of Justice probe and several lawsuits. The National Association of Realtors has defended industry practices.
Typically, the home seller pays a commission rate – usually about 5% to 6% of the house’s sale price – that is split between the agent representing the seller and the agent representing the buyer. Usually, about half of the commission, 2.5% to 3%, goes to the buyer’s agent. (Agents may also split commissions with their brokerage.) Real estate groups say these figures are negotiable, but many buyers and sellers don’t fully understand how commissions work.
In reviewing 469 Seattle listings, the consumer federation found that about 92% offered buyer’s agent commissions between 2.5% and 3%. About 52% offered the same rate of 2.5%. That was more variation than in many other markets, especially in the West, such as Boise, where 89% of sales had the identical commission rate of 3%. But a handful of other markets, including Salt Lake City, New Orleans and Brooklyn, New York, had more variety than Seattle.
The consumer federation says the real estate industry should decouple those rates so buyers negotiate and pay their agents directly. Realtor groups argue that would raise upfront costs for buyers already struggling to afford homes.
If you’re a homebuyer shopping in the current system, the consumer federation urges you to try to negotiate. In most states, agents can give buyers a rebate of a portion of their commission.
That’s easier said than done. A CFA survey released this week found few homebuyers ask for a rebate, and even fewer are successful in getting cash back. An online survey of 1,040 people who bought a house through an agent found just 17% of them had sought a rebate and 7% had received one.
Few agents advertise rebates, beyond discount brokerages.
Seattle-based Redfin, for example, started out promising to slash commissions but after industry backlash eventually adopted a structure more similar to typical brokerages. Today, Redfin offers some buyer refunds, but its market share nationwide is just 1.2%.
“This is not a traditional competitive market,” Brobeck said.
Real estate agents argue their services are worth the cost, and are skeptical of changing the way commissions are paid.
“People aren’t as price-conscious shopping for real estate services because they’re really looking for someone they trust to walk them through this,” said Seattle Windermere agent Sol Villarreal.
Buyers’ agent commissions have become more transparent in recent years.
In 2019, the Northwest Multiple Listing Service – where brokers across 26 Western Washington counties exchange listing information – began allowing real estate firms to publicly publish buyer’s agent commissions in listings. The NWMLS also removed the requirement that sellers’ agents offer any buyer’s agent commission at all, opening the door for buyers and their agents to negotiate that fee directly.
But so far, that doesn’t appear to have led to widespread shifts in the local market. The change worried some agents at the time, but turned out to be a “nothingburger,” Villarreal said.
The median commission rate on Seattle home sales is lower than in some other markets – 2.5%, according to the consumer federation – likely because of the competitive housing market and high home prices, said Redfin Chief Economist Daryl Fairweather.
“Sellers don’t need to offer a high commission to buyers’ agents because they know that they’re going to get eyeballs on their home because there are so few homes for sale and so many buyers out there,” Fairweather said.
The NWMLS declined to comment on the consumer federation report or the effects of the 2019 rule change.
Negotiating commission rates is a tough prospect.
If clients ask him to provide a rebate, Villarreal usually says no. As an established agent with most clients coming through referrals, “my services are in higher demand than my supply of time to work with people,” Villarreal said.
“The value proposition for a buyer in the Seattle market is I’m going to help you get a house quickly and painlessly, no matter your price point, no matter what the market conditions are. I’m going to guide you through that and be your trusted advocate through that,” Villarreal said.
Newer agents with fewer clients may be more likely to give a rebate, he said.
With commissions already down, “it’s not going to be easy” to get a rebate, said the consumer federation’s Brobeck: “We’re recommending that nevertheless buyers ask that question.”
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