Homes come in all shapes, sizes, price points, and styles. However, the commissions traditionally paid as part of these transactions have been locked at 5-6%. That’s ending now. Buyers will now have the freedom to negotiate the rate they will pay the agent they work with, leading to real savings.New technology will play a role in reducing commissions. Apps like HomeScore give buyers greater transparency, insight, and clarity into homes they’re seriously considering by using data to help buyers negotiate more intelligently and stay organized throughout the winding buying process.The National Realtors Association settlement and others like it could lead to a 30% reduction in the $100 billion that Americans pay each year in real estate commissions, said Ryan Tomasello, a real estate industry analyst with Keefe, Bruyette & Woods, in a research note on the case, as reported by the Wall Street Journal. Tomasello previously worked as an investment banking analyst at Bank of America Merrill Lynch. He is currently a managing director at Keefe, Bruyette & Woods.

Buying a $700,000 Real Estate Home

Let’s dive into an example of how much a buyer could save by negotiating the agent commission from the traditional 3% down to 1.5% in the current real estate market. In this example, we will keep the seller’s agent commission at 3%.

Traditional Commission Structure by Investment Banking Analyst:

Total Commission ($42,000 = 6%): Traditionally, a 6% commission split equally between the buyer’s and seller’s agents would amount to $42,000 ($700,000 * 6%). In the context of commercial real estate, this commission structure is crucial as it impacts various sectors such as finance, brokerage, housing, and mortgage services.

Buyer's Agent Commission (3%): $21,000 

Seller's Agent Commission (3%): $21,000 

Negotiated Commission Structure with Real Estate Technology:

Total Commission ($31,500 = 4.5%): If you negotiate the buyer’s agent commission down to 1.5%, while the seller’s agent keeps their 3%, the total commission would be $31,500 ($700,000 * 4.5%). Understanding the price target and price targets in stock ratings and investment analysis can provide insights into the financial implications of such negotiations.

Buyer's Agent Commission (1.5%): $10,500 

Seller's Agent Commission (3%): $21,000.

Buyer Savings: $10,500

Impact on Commercial Real Estate Services:

Reducing the commission might come with a change in the level of service provided by the buyer’s agent. With the rise of real estate technology and fintech software, brokerage firms are adapting to changing market conditions by leveraging these innovations. For instance, with a lower commission rate of 1.5%, the agent might limit their services to essential tasks such as contract review and negotiation, rather than providing full-service support. This could mean that the buyers might need to be more proactive in their home search, attending open houses independently, or directly reaching out to listing agents for showings. The reduced service model would essentially involve the agent stepping in primarily for the formal and legal aspects of the purchase, ensuring the buyer is represented during the offer, negotiation, and closing stages, but without the additional support services typically provided.Learn more about how to navigate your own home-buying journey.Try HomeScore