3% Real Estate Agents vs. Low Commission Agents

For years, 3% real estate agents had a virtual monopoly on the real estate market. 

But traditional agents now face competition from low commission agents who offer 2% or even 1% commission— often for the same services that the full commission agent is offering. 

What are the drawbacks of these low commission agents, and are the savings worth the hidden downsides?

For decades, home sellers paid a traditional 3% listing fee when they sold their house— in addition to a 3% buyer’s agent commission. That traditional 6% commission model was the inescapable industry standard until recent years, when advancements in antitrust law opened the market up to discount real estate brokerages.

Today, home sellers who shop around can pay everything from a 1% commission, to a 2% commission, to a 3% commission. Most of these companies also require a 3% buyer’s commission, while a few have reduced or eliminated it. As it stands today, the seller market offers more options than ever before, at a variety of price points – but those different price points come with varying levels of services, too. 

The truth is, it’s not about how little in commission you can pay (see here for a list of companies that offer the lowest commission), but about how much value you can get for that commission.

To clarify the stakes for sellers looking to reduce their commission – but still wanting a satisfying, competitive selling experience – let’s take a closer look at the traditional 6% commission model, explain how cultural and technological advances have led to lower commission overall, and look at some of the most popular discount brokerages and what they do and don’t offer in exchange for a lower commission.

Table of Contents

• The Traditional 3% Commission Model
• How Do 1% and 2% Real Estate Commissions Work
• The Main Discount Brokerages (and How They Work)
• Why Do Low Commission Agents Agree to Work for Less?
• Breaking Down the Differences in 1%, 2%, and 3% Commission

The Traditional 3% Commission Model

The traditional commission model works like this: after closing, the seller pays 3% commission to the listing agent, and 3% commission to the buyer’s agent. 

That means in total the seller pays 6% of their home’s value! On a $200,000 home (roughly the median home price), your looking at $12,000 in real estate commission alone.

For their 3% commission, real estate agents provide a variety of valuable services. They help the seller stage and present their home for the market, help them arrive at a competitive price, conduct and oversee open houses and showings, negotiate with the buyer’s agent on price, and guide the seller through closing. 

Agents who work with brokerages have to split their 3% commission with their broker, though the split varies depending on the agent’s experience and sales figures.

Why You (Almost) Always Pay the Buyer’s Agent 3% Commission

On the other side, the buyer’s agent commission acts as an incentive for buyer’s agents to bring their clients to see your home. Think of it this way; a buyer’s agent duty is to listen to their client, and show them properties that fit their desires. But the only way they’re paid is through commissions. 

So if one house offers a 3% commission to the buyer’s agent, and a similar house doesn’t offer any commission, it’s only natural that they’ll steer their client to the house offering the 3% commission. Even if the no-commission home is their client’s dream home, they’d essentially be working for free if they steered their client to that property. This, in a nutshell, is why buyer’s agent commissions are so ubiquitous; homes that don’t offer them are at a steep disadvantage against homes that do offer them.

This also explains why discount brokerages who offer a 1%, 1.5%, or 2% commission are almost always talking about the listing fee – for competitive reasons, a 3% commission for the buyer’s agent is basically unavoidable.

So it follows that if discount brokerages are cutting their listing fee, then their listing agents are probably offering less services. This is often true – with some notable exceptions, which we’ll address below when we profile specific discount brokerages.

How Do 1% and 2% Real Estate Commissions Work

Every discount brokerage offers its own spin on the reduced commission, but the overarching idea behind the industry is that buying and selling a home has gotten a lot easier in the past decade or two, thanks to the internet.

In the pre-internet era, selling and marketing a home took a ton of legwork and ingenuity. Yard signs and newspaper ads reached some people, but agents also had to network extensively with other agents so buyers and sellers could be matched up. 

If you were selling an expensive home, you had to work with an experienced, elite 3% real estate agent, because the main way to find a qualified buyer was to hope that your agent either knew a specific buyer looking for a home in your price range, or knew a buyer’s agent who did. In a very real sense, you weren’t just paying that 3% commission for your agent’s labor; you were also paying for their network and expertise.

It was no different on the buyer’s side. The MLS had a virtual monopoly on listings, so anyone who wanted to buy a home had to partner up with a buyer’s agent, tell them what they were looking for, and then wait for the agent to scour MLS listings until they compiled a list of suitable properties. Then the agent would escort the buyer to the properties and hope they liked one of them. This was a laborious and often months-long process.

Today, the internet has dramatically simplified things. At their very first meeting, buyers will often present their agents with a list of properties they’ve found online. A listing can go live on Wednesday and have ten offers by the end of the Saturday open house. In 2020, buyers mostly find properties online, and agents are hired to act as negotiators and subject matter experts.

Things are similar for sellers – since buyers find the home themselves, listing agents contribute the most value as negotiators, and as market and pricing advisors.

To put it simply, the internet now does a lot of the work that agents used to do. Since the internet has automated much of the real estate process, many agents are willing to take on higher volumes of work at a lower commission rate. By offering a lower commission, they’re more likely to attract sellers and earn more business. 

This is a viable strategy for agents because a hot market has also led to higher prices and more transactions. An agent who works for lower commission, or a flat fee, may be making less money per transaction, but in a thriving market they can also close more transactions than before.

The upshot? Lower commissions – 2.5%, 2%, or even 1% – are real, and they work for everyone involved. The real question for sellers is, what level of services are they willing to provide in exchange for a lower commission? Can a discount agent offer the same quality as a 3% real estate agent?

Low Commission Brokerages (and How They Work)

In the past, sellers who wanted to pay less commission turned to a For Sale by Owner (FSBO) listing. A FSBO listing is exactly what it sounds like: the seller does all the work themselves, from staging, to pricing, to negotiating, to closing. But they soon learned that selling a house without an agent is a lot of work, and that FSBO listings have a very low rate of success. 

According to a Clever study, about 50% of home sellers said they wouldn’t feel comfortable negotiating with buyers, and about 62% wouldn’t feel comfortable finding and completing the necessary paperwork for closing. Many sellers who aspire to sell FSBO end up using an agent when they become overwhelmed with the home selling process. 

For many sellers who want to save on commission, it makes much more sense to work with a discount brokerage. They’ll pay less, but still receive some level of expertise. Let’s look at three of the biggest discount brokerages, and discuss their very divergent business models.

Clever Real Estate

Clever offers sellers a full service selling experience for a flat fee of $3,000, or 1% if your home sells for more than $350,000. Typically, sellers who work with Clever offer the standard market rate for buyers’ agents (around 2.5%), for a total of 3.5% in commission fees. 

Clever pairs sellers with top local agents who give them a full service selling experience, including everything they’d receive if they paid a full 6% commission. 

This means that, unlike with other discount brokerages, there won’t be any “service gaps” that have to be filled by the seller. For example, other discount brokerages don’t oversee open houses, or may even conduct all business online.

Clever offers a truly full service experience, at a significantly discounted price.

Hot tip: We’ve partnered with Clever Real Estate to offer top-rated agents who work for 1% or $3000. Speak with a rep today and get connected with top-rated agents in your area!

Redfin

Redfin rebuilt the brokerage from the ground up. Their agents are salaried, in-house employees who don’t earn commission, which is why Redfin can offer sellers commission as low as 1%. However, to access that 1% listing fee, sellers have to also buy with Redfin; if they only sell, their commission is likely to be 1.5%. Like Clever, Redfin sellers will also typically offer a 3% commission to the buyer’s agent.

But this model comes with some drawbacks. Many people have pointed out that, if Redfin agents don’t make the standard 3% commission, they have much less incentive to negotiate up the price of your home— they’ll be paid the same no matter how much it sells for. While most Redfin agents are definitely professional, the removal of the commission incentive must affect some agent behavior. 

In addition to that, sellers work with a team of in-house employees, including their agent (who’s also working with many other assigned clients), transaction coordinators, and other peripheral specialists. Many sellers have reported subpar experiences with Redfin, due to poor communication with their overworked team. 

While Redfin offers a full service selling experience at a reduced commission, many users have reported a less-than-satisfying experience working with Redfin, and it’s possible these problems are due to flaws in their business model.

REX Real Estate

REX is the only discount brokerage on this list that has eliminated the buyer’s commission from their transactions. So when they say they charge a 2% commission (or a $9,000 minimum listing fee), that’s all sellers will actually pay. That puts REX Real Estate among the least expensive discount brokerages— but there a couple important caveats here.

REX Real Estate doesn’t put their listings on the MLS, which is the main source of listings for buyer’s agents, and isn’t open to the public. Considering that almost 90% of buyers work with agents, that cuts a property’s potential audience down quite a bit. Instead, REX uses digital marketing to target unagented buyers. Since this is a small pool of buyers, REX listings are likely subject to much less competition, and may tend to sell low.

And even if buyer’s agents find REX listings, they may not be eager to take a client to view them, since REX listings don’t offer a 3% commission to the buyer’s agent. For a buyer’s agent, taking a client to a REX listing is working for free. 

So while REX offers a very significant commission discount, they also expose your listing to a much smaller pool of buyers, and may even drive off some buyer’s agents with their no-buyer’s-commission policy. It’s a trade-off that consumers will have to seriously weigh. 

Why Do Low Commission Real Estate Agents Agree to Work for Less?

It seems counterintuitive that sellers could get the same level of service, while paying less commission, but let’s dig into the low commission model. 

As we covered above, it’s much easier to sell a house in 2020 than it was, say, twenty years ago. That means agents can take less money per transaction – rather than their traditional 3% real estate agent fee – but still come out ahead in the long run, since they’re making up for it in the sheer volume of sales they’re closing. An agent that can close five $3,000 flat fee sales in the time that a traditional 3% real estate agent can close one $10,000 percentage-based commission deals is coming out far ahead.

Breaking Down the Differences in 1%, 2%, and 3% Commission

Although 1% may sound like an insignificant discount, it can translate to real money when you’re dealing with six figure sums. Let’s look at a chart showing how much you’d pay at each level of commission, if you were selling a $300,000 home.

Commission Rate	Buyer’s Commission	Total Commission
1% = $3,000	2.5% = $7,500	$10,500
2% = $6,000	2.5% = $7,500	$13,500
3% = $9,000	2.5% = $7,500	$16,500

As you can see, even a 1-2% discount equals significant money in a transaction of this size. The difference between paying a 1% commission and a 3% commission is a whopping $6,000. That’s real money that can be used on moving costs, down payments, or simply pocketed. 

Real Estate Witch has partnered with Clever Real Estate to help our audience save big on their home sales. Using the chart above, Clever’s $3,000 flat fee equates to a minuscule 1% commission. And because Clever sellers are paired with pre-vetted local agents, they get every bit of services that a seller paying a traditional 6% commission would receive. That’s a deal you simply can’t get from any other discount brokerage.

Contact Clever today for a free, no-obligation consultation, and learn how you can have a five-star, full service selling experience for a low, flat fee!