A Look Into the Future of Home Buyers’ Agent Commissions

The National Association of Realtors’ landmark settlement is upending the home buyers’ agent commission system. Companies already experimenting with different structures offer insight into what this new world of home sales might look like.

Some buyers pay their agents directly through a flat fee or an hourly rate, instead of relying on the seller to set a rate. Some sellers offer a lower commission to a buyer’s agent than the currently typical 2% to 3%. 

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Customers like the flexibility of these new models, which can significantly lower the fees paid to a buyer’s agent. The savings can run to several thousand dollars on a home listed at $400,000. 

But these nontraditional approaches often mean buyers have to do more work themselves. And sellers who offer lower commissions could find it tougher to sell if buyers’ agents discourage buyers from bidding on their homes. 

Regardless, these models look poised to become widespread this summer when the new rules go into effect and buyers and sellers become aware of the changes, according to analysts. 

In a $418 million agreement announced Friday, NAR settled legal claims that the industry conspired to keep agent commissions high. In doing so, the organization agreed to make it easier for home buyers to negotiate fees with their own agents.

Starting in July, most home sellers won’t need to make an upfront offer for how much they will pay a home buyer’s agent. That means if home sellers won’t cover the cost of the buyer’s agent, buyers could have to pay their agents out of pocket. 

Home shoppers paying directly for each task an agent performs could save buyers $30 billion a year compared with under the current system, because buyers would negotiate for lower prices and tour fewer homes, according to a working paper released by economists at the Federal Reserve Bank of Richmond. 

Thanks to online listing sites, it is easier today for buyers to find homes and cheaper for sellers to advertise their listings, said Mike Maher, chief executive officer of Newfound, which owns discount brokerages.

“There’s a lot of excess fat in the costs to sell a home,” he said. “If you remove some of those costs, it should make homes more affordable and attainable.”

The hope for buyers is that new payment models help lower their commission costs, which could ultimately reduce home prices.

Flat fees for service

One way that might work is a flat-fee model. Under this approach, buyers would agree to pay their agents directly, but they could choose to ask the seller to cover this cost. 

Fred Glick, founder of the Los Angeles brokerage Arrivva, represents buyers for a flat fee of $9,750. If sellers offer a higher compensation to the buyer’s agent, Glick rebates the difference to the buyer. For sellers, Glick charges a flat fee of $15,750.

In exchange for those savings, buyers take on some duties often performed by an agent. Glick’s buyers typically find homes for sale on their own. “Every once in a while we get someone who needs the hand-holding, and we tell them, unfortunately, we can’t help them,” he said. 

William and Ashley Brode worked with Arrivva to help sell their Los Angeles home and buy a different one earlier this year. Brode said he appreciated Arrivva’s advice on negotiating and that they didn’t need help searching for a home.

“In this area, houses are very expensive, so a flat fee versus a percentage can make a massive difference,” Brode said. 

The digital real-estate brokerage Beycome in South Miami, Fla., typically offers buyers a rebate of two-thirds of the buyer’s agent commission. 

Buyers can schedule showings, submit offers and close a deal online. For most of the process, buyers essentially become their own agents and receive an information packet to answer questions. Beycome pays local real-estate agents to open the door for home showings.

Since buyers do a lot of their own home-buying research online these days, commissions should be lower, said Beycome’s co-founder Nico Jodin.

Sellers paying less

DeLeon Realty in Palo Alto, Calif., began advertising in January that sellers could list their homes for a total commission of 3.5% or less, which would include 3% for the listing agent. That compares with the 5% to 6% typical commission nationwide, which is split between the seller’s agent and the buyer’s agent.

Many of its sellers were able to save money by offering lower commissions to buyers’ agents than what was typical in Silicon Valley, said Chief Executive Michael Repka.

Of 20 sellers who used the firm in January and February, nine chose to offer the buyer’s agent $10,000. Another chose $20,000. The other 10 offered compensation ranging from 0.5% to 2.5% of the sale price.

Despite the discounted commission rates, Repka said, demand for the listings was strong. One Palo Alto home that listed at just under $2 million and offered a $10,000 buyer’s commission got 17 offers, he said.

The home sold for $2.7 million. That means if the seller paid a more typical 2.5% commission to the buyer’s agent, the fee would have come to about $67,500.

“If we had buyers’ agents being paid by buyers, I think buyers would be well-served, because they would put more thought into which agent they want to work with,” Repka said.

Some buyers want service

Yet failed previous efforts to disrupt the traditional structure suggest that many buyers expect a high level of service. Seattle-based Redfin used to charge buyers $250 a tour and rebate two-thirds of the buyer’s agent commission, assuming that buyers would opt to tour homes themselves to save money. 

But buyers wanted more advice from their agents, and listing agents were skeptical that buyers were serious if their agents didn’t join them on tours, said Chief Executive Glenn Kelman. Redfin changed its model in 2008 to offer unlimited free tours and a 50% rebate.

“I’ve now become convinced, through bitter experience, that people need someone to talk to before they make an offer,” Kelman said. Still, he added, commission costs should be lower.

“People will pay for service,” he said. “They just shouldn’t overpay for it.”

Write to Nicole Friedman at nicole.friedman@wsj.com and Veronica Dagher at Veronica.Dagher@wsj.com