Why do Americans pay such high Realtor commissions? US fees are TWICE as high as most countries – experts unpack how cost of buying real estate rocketed

Americans pay about twice as much commission to real estate agents as their counterparts elsewhere in the world – why?

Recent high-profile lawsuits have focused on the question of how much real estate agents should be paid, leading agents to argue that the system is fair and sellers to argue otherwise.

DailyMail.com spoke to real estate experts to understand how fees in the US differ from those in other countries and why Americans are expected to pay much more for what appears to be the same service.

The answer lies in the controversial 'bundled' commission system used by brokers in the US since 1913.

The forerunner of the powerful trade association National Association of Realtors stipulated that the broker representing a home seller “must always be ready and willing to divide the regular commission equally with any member of the association that can produce a buyer for every client.”

For each sale, the buyer's and seller's agents receive an equal commission, which is paid by the seller and is usually between 5 and 6 percent. Because the agents are paid from the same pot, it is in both their interests that the fees paid by the seller are high.

“The way it works in practice is the agent goes to the seller and says, 'Listen, I'm going to charge you 3 percent, but if you don't offer the buyer's agent 3 percent, no one is going to leave. to show your home,” says Rob Hahn, real estate consultant and founder of Las Vegas-based 7DS Associates.

'The argument is that the commission in the US remained at 6 percent, unlike the rest of the developed world, such as in Britain, where the commission is closer to 1.5 percent.'

A recent report from investment bank Keefe, Bruyette & Woods (KBW) argues that because agents in the US are bundled, virtually all buyers are represented by an agent.

In Britain and Australia, fewer than 5 percent of home buyers have an agent, according to the report.

Hahn recounted a conversation he had with a hedge fund manager from Britain who had bought four houses without the involvement of a real estate agent.

And a recent survey by consulting firm 1000watt found that the majority of U.S. homebuyers would likely forego a buyer's agent if it were an option.

About 71 percent thought it made more sense to involve one instead of two real estate agents in a real estate transaction.

The bundled system not only artificially high utilization of buyer agents, the report states, it also reduces the incentive for buyers to negotiate a lower price for their services if they actually want them.

“In countries where buyer agents are common, countries where buyers directly compensate their agents have, on average, approximately 30 to 35 percent lower commission rates than those where sellers typically compensate buyer agents,” the report said.

“Under a new system in which buyers pay their own agents directly, they and their agents would be forced to discuss and negotiate commissions at the beginning of the process.”

After a jury found in October that the NAR had allowed agents to collude to keep their commissions artificially high, an upcoming court ruling is expected to forever change the way the system works in the US.

Hahn predicted that buyers will start paying for agents themselves and their use will decline, likely leaving many agents out of a job.

“I think buyer's agents will eventually move to being paid directly by the buyer on an hourly basis, up front,” says Hahn.

'And the secondary consequence of that is that many buyers simply buy houses without the intervention of a real estate agent.'