Why more home buyers and sellers are turning to flat-fee brokers

For people like Jim Xiao, that was too much. “It seemed like the realtor fees had always been essentially an expected, fixed amount. When you tried to negotiate, you were basically just told, nope, that’s our rate,” he says.

But the rules of the game have changed, after the powerful National Association of Realtors settled a lawsuit in August, agreeing to new policies about how agents are compensated. The lawsuit was brought by a group of home sellers in Missouri who argued the association’s rules forced them to pay excessive fees.

Xiao says he experienced firsthand the frustrations of the old rules in 2023 when he helped his parents buy two homes in Augusta, Ga., without a buyer’s agent. The homes were new construction, and Xiao tried to negotiate a credit equal to the 2.5% that usually went to the buyer’s agent, since he wasn’t using one. But to no avail — the listing agent pocketed the full 5% commission.

So when it came time to sell his condo and buy a new home for his family last year, Xiao decided to do things differently. He found an agent who would accept a 1.5% commission to sell his condo, and a flat $10,000 to help him buy a new home.

New rules could shake up realtors’ grip on commission structure

Agreements like Xiao’s could become more common as the new rules usher in a few big changes nationwide.

Buyers must sign an agreement with their agent establishing how their agent will be paid — including the possibility that if the seller won’t pay the buyer’s agent, the buyer will do so.

And finally, offers of agent compensation can no longer appear on the online databases known as multiple listing services, or MLS, that are used to list homes.

These new rules have created an opening for brokerages that charge a flat fee.

“Home buyers and sellers almost feel like they’re trapped into using agents, rather than they’re hiring agents at a reasonable fee,” says Rob Luecke, CEO of ShopProp Realty, a flat-fee brokerage that operates in nine states.

Luecke says his goal is to eliminate commissions — or at least get them a lot lower, “and put the power back into the home buyer and sellers’ spot where it really needs to be.”

For high-end homes, the potential savings are eye-popping. ShopProp represented a buyer who purchased a $10.2 million home in the country’s most expensive zip code, in Atherton, Calif.

The buyer’s agent might typically pocket a commission of 2.5%, or $255,000, on that sale. But instead, the buyer himself got the bulk of that money back, in the form of a rebate for $247,000 — and paid a $7,995 flat fee to ShopProp.

“That client was so happy,” says Luecke, that he gave ShopProp a $1,000 bonus on the deal.

Flat fee vs. commission-based agents

Luecke says ShopProp’s business has been growing by about 26% a year, on average.

But traditional commission-based real estate agents say their higher fee is worth it, because they provide a level of service and localized expertise the flat-fee brokers don’t offer. They also have to share part of their fee with their brokerage company, reducing their individual earnings.

She suggests potential buyers and sellers should interview agents at both traditional and flat-fee brokerages, and see what feels comfortable.

So far, broker fees haven’t changed much

Despite the new rules, commissions haven’t changed too much since the settlement went into effect nine months ago. New data from Redfin based on thousands of transactions shows that buyer’s agent commissions averaged 2.4% in the first quarter of the year — that’s slightly higher from when the new rules took effect, but down a bit from a year earlier. (The data is based on sales of Redfin agents’ listings, as well as deals referred to partner agents, or in which a buyer used Bay Equity Home Loans, which is owned by Redfin.)

Xiao says he understands the concern that if you hire a low-priced agent, they may do the bare minimum. “But all throughout the process, she was great,” he says of the realtor he worked with, who operates her own brokerage. “She did everything, if not more, compared to what other realtors had done in the past.”

And paying his agent a flat fee saved him $14,000 when he bought his home — money that he could put toward closing costs.