The Truth About U.S. Securities and Real Estate Commissions
Is Fee Compression Coming for the Real Estate Industry?
Recent news reports reveal that the U.S. real estate industry may need help regarding their traditional way of doing business, charging and sharing commissions on property sales that can be as high as 6%, maybe more.
Two lawsuits demanding billions in damages claim that the real estate industry has schemed to maintain high commission rates for selling homes. Despite technological advancements that have reduced costs in various consumer transactions, such as travel bookings and stock purchases, the fees associated with home sales have remained relatively stagnant.
This situation may be on the brink of a transformation. Either way, let’s look at how commissions currently work in the real estate business. Then, we’ll take a look at the securities industry. We’ll also see whether the trend in the securities industry to compress fees will take hold in real estate, as the recent spat of lawsuits may soon reveal.
Evolution of Real Estate Commission Structure in the U.S.
Here’s what the industry landscape looks like now. Traditionally, U.S. real estate commissions have been around 6% of the home’s selling price, equally split between buyer’s and seller’s agents.
However, the rise of limited-service and online brokers in the late 20th and early 21st centuries began to challenge this standard. Companies like Redfin have further disrupted the model by employing salaried agents who earn bonuses based on customer satisfaction.
As a result, today’s commission structures are more flexible and negotiable, often ranging between 1–6%, depending on factors such as market competitiveness and property value.
How Securities Commissions Work
In contrast to real estate, let’s look at a brief history of fee compression in the securities industry. I held more than one license with the Securities and Exchange Commission. I was also licensed in Arizona to sell publicly-traded securities and insurance between 1991–2003. I respect people who make a fair commission regardless of the industry.