Here’s why commissions vary for buyers’ agents

With the brokerage world focused on commissions for buyers’ agents, a New York City-based listing service set out to find how much those agents are earning.

The answer: It depends.

RealtyHop discovered that except for co-ops, the higher the asking price, the larger percentage that sell-side agents offered to buy-side counterparts. The pattern held in boroughs with higher home prices, according to the study published Tuesday.

“Every home is in some way unique, based on the location and on all the features that come with it,” report author Shane Lee said. “What we’re trying to argue is that the fee actually reflects the amount of work somebody has to put in.”

The report looked at buyer’s agent commission offers across 20,000 listings on the Real Estate Board of New York’s RLS and OneKeyMLS in Manhattan, the Bronx, Brooklyn and Queens over the past year.

A month ago, REBNY and 26 residential firms in the city were hit with a class-action antitrust suit over broker commissions. That followed a landmark verdict in Missouri that found two brokerages and the National Association of Realtors were colluding to control buy-side commissions. The finding and $1.78 billion judgment triggered a slew of copycat lawsuits.

The complaint against REBNY, filed by an Upper East Side home seller, claims the trade group inflated commissions charged to home sellers by requiring listing brokers to offer compensation to buyer’s agents.

The trade group had changed its rules in October to prohibit sell-side brokers from offering compensation, but still couldn’t avoid the wave of antitrust litigation over broker commissions aimed at brokerages, listing services and trade groups across the country.

Though the RealtyHop report claims to disprove allegations that the trade group colluded with brokerages to inflate commissions (it was headlined “Study Finds No Collusion Between Brokerages and REBNY”), the evidence it cited does not quite do that.

RealtyHop found that for homes listed for $500,000 or less, buyers’ agents earned an average commission of 2.2 percent and a median of 2 percent. For homes asking $2 million and above, they received an average of 2.8 percent and a median of 2.5 percent.

“Luxury homes sometimes do come with higher commissions because there’s more work,” Lee said.

There is also more money to be made by the seller’s agent on those deals, so offering a higher commission to buyers’ agents is an incentive for them to show clients the home. Buyers of lesser-priced homes may be more likely to shop on their own.

The report showed that buyer’s agent commissions varied from borough to borough, in line with price differential. In Manhattan, where the median asking price is $1.4 million, buyers’ agents earned an average commission of 2.9 percent and a median commission of 3 percent. 

In Queens, where the median asking price is about $690,000, the median buy-side commission was 1.5 percent and the average was 1.8 percent.

The study did find a glaring exception to the correlation between price and commission percentage.

Co-op buyers’ agents received a median commission of 2.5 percent, although the median sale price was only $545,000. The median commission on single-family or multifamily houses was just 1.5 percent, despite their median prices being higher ($739,000 and $1.08 million, respectively).

Buyers’ agents were offered the same median commission and a higher average commission on co-op and condo listings versus townhouse listings, which had a $1.8 million median price.

“The co-op market offers a higher rate because there’s board approval,” Lee said. “The process is a lot longer before somebody can get paid for the work they put in.”

Some co-op boards favor certain agents, and it can be more difficult to gain board approval without one. Higher commissions could also be a way for a seller’s agent to attract buyers to co-ops, which have become less attractive to buyers in recent years.

Buyers’ agents who worked on condo deals earned the highest commissions — 2.6 percent on average — which is in line with the relationship to asking prices.

It is possible that studies such as RealtyHop’s could be part of brokerages’ defense in pending antitrust cases.

“At the end of the day, how this is negotiated or determined is really by the parties involved,” Lee said. “That’s why with single-family homes, you see a lower commission rate for buyer’s agents because it’s relatively easy in terms of having a transaction done from start to end.”

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