Sorry, Home Sellers: The 6% Commission Isn’t Going Anywhere

Negotiation is an essential part of buying or selling a home. But for nearly a century, there’s been one part of the process where haggling doesn’t fly: the 5% to 6% standard commission charged by US realtors.

Now, in a dramatic turn of events, the National Association of Realtors has settled a class-action lawsuit that targeted the practice, agreeing to reforms that could cut commissions.

News outlets have generally described the case as a game-changer that will unleash competitive forces in the industry. And why not? The US standard is far higher than one charged by realtors in countries like Germany (recently 4.5%), Australia (2.5%) and the UK (1.3%).

In reality, though, the history of how these commissions came to be — and how they have persisted, despite legal challenges — suggests that change will come slowly, if at all.

Prior to the early 20th century, real estate brokers had the same sorry reputation as snake oil salesman and carnival barkers, and many people eschewed them entirely. These “curbstone brokers” plied their trade as free agents, displaying a rapacity that earned them a reputation as “land sharks.”

Eager to shed this image, more reputable real estate agents began forming professional associations, usually called boards, in the early 20th century. These new groups established exclusive contracts that bound sellers to a single listing agent for a set period of time. They also set standard commissions, typically a percentage of the total sale that could go to the sellers’ agent — or, when a buyers’ agent played a role, be splitin half.