Washington, D.C. – Today the Consumer Policy Center (CPC) released a report, authored by Senior Fellow Stephen Brobeck, that explains why home buyers and sellers can save money by thinking and talking about agent compensation in terms of dollars not percentages. Currently, home sale discussions and contracts focus on agent compensation as a percentage of sale prices.
The study – “How Percentage-Based Commissions Can Harm Home Buyers and Sellers and What They Can Do About It” – revealed that percentage-based commissions can be costly to consumers in two specific ways. First, these commissions provide buyer agents with a financial disincentive to negotiate lower home sale prices for their clients. As one academic study cited noted: “…the agent’s goal of maximizing the expected commission will conflict with the buyer’s goal of minimizing the selling price….This divergence can lead to shirking by the agent.”
Second and more importantly, the fact that most agent compensation is expressed in percentages not dollars leads many home sellers and buyers to underestimate the real dollar cost of commissions. Many consumers apparently perceive six percent of a $400,000 sale price to be less costly than $24,000. When a national research firm recently asked a representative sample of 1013 adult Americans – “In a contract to sell or purchase a home, would you prefer the agent’s compensation to be listed as a dollar figure or as a percent of the sale price?” – 55 percent preferred a dollar figure and only 15 percent favored percent of sale price. Thirty percent expressed no preference.
Research suggests several reasons for this perception:
- Some people have a limited understanding of percentages.
- People tend to underestimate prices expressed as small percentages.
- Some people want to believe they are not paying large sums in agent compensation.
“Now that both buyers and sellers can negotiate agent compensation, they should take advantage of this opportunity and discuss this cost using dollars not percentages,” noted CPC’s Brobeck. “Consumers will be more aware of the actual costs of the commission, and agents will perceive buyers and sellers as more informed about agent compensation so may be more willing to negotiate it,” he added. The settlement of class action litigation (Sitzer-Moehrl vs. National Association of Realtors et al.) and new NAR rules have provided buyers especially with an opportunity to discuss and negotiate commissions with their agents.
The report also recommends that buyers consider negotiating a fixed fee (“flat fee”) that does not rise if their agents “shirk” from seeking a lower sale price. An option for sellers is to consider working with a flat fee broker.
The Consumer Policy Center (CPC) (www.consumerpolicy.org), launched in February 2025, is a think tank whose experts undertake research and commentary to advance the consumer interest. Many of these experts have led consumer or government organizations, held university appointments, and published scholarly research. The CPC does not take positions on policy issues; the analysis and views in CPC publications are those of their authors.
