by Faiza Ahmed (Broker) 
Major real estate brands in North America often charge sellers 5–6% commissions on a home’s sale price – tens of thousands of dollars per transaction – yet much of this money goes toward broker profits and massive marketing budgets rather than directly improving the client’s experience.
1. Commission Structures: Where Your Money Really Goes
Steep Commission Rates:
In the U.S. and Canada, traditional realtor commissions typically total around 5%–6% of the home’s price. For a $400,000 home, that means roughly $20,000–$24,000 in fees. This commission is usually split between two agents – the seller’s (listing) agent and the buyer’s agent – each getting about half. Major brokerage franchises like RE/MAX, Royal LePage, Century 21, Sotheby’s International Realty, and Keller Williams overwhelmingly adhere to this model, seldom undercutting each other on price.
Allocation of Fees:
To most people, It might appear that your agent walks away with a huge paycheck, but in reality, each agent only keeps a portion of their half. Brokerage splits are common – often 20–50% of an agent’s commission goes to their broker company.
For example, if a listing agent’s share on a $500,000 sale is $12,500 (2.5%), their brokerage might take around $3,750 (30%), leaving the agent with roughly $8,750 before any other expenses. Many big-brand brokerages are franchises, so franchise fees come off the top as well.
Keller Williams, for instance, deducts a 6% franchise royalty on each deal (capped annually) in addition to the split. RE/MAX agents often pay high monthly desk fees to get a larger split (e.g. 95/5 split after a flat fee), but RE/MAX franchises still skim about 1% of each deal as a “broker fee” sent to corporate. In effect, the commission you pay is divided among four layers: the listing agent, the listing broker, the buyer’s agent, and the buyer’s broker – each taking a cut.
What Consumers Think They’re Paying For:
Home sellers often assume a hefty commission guarantees premium service – skilled pricing, marketing, negotiation, etc. – from an experienced agent.
While agents do provide valuable services, the commission structure is not tightly linked to effort or results. Notably, commissions are based on the property price, not the work required. Selling a $1 million home can net ten times the commission of a $100,000 home at the same rate, yet it’s rarely 10× more work.
"One would expect that commissions on expensive homes would be discounted. Yet that usually is not the case," observes Stephen Brobeck, a consumer advocate, who calls the current compensation structure "both inequitable and inefficient".
In practice, major brands rarely adjust rates even for high-priced listings – a hidden cost for luxury sellers who pay a premium that isn’t proportional to extra service.
2. Funding Big Marketing Budgets Instead of Better Service
Where the Commission Dollars Go:
Rather than funneling your commission directly into the sale of your home, large portions often go into franchise coffers and advertising budgets. Major brokerages justify high commissions in part by touting their brand’s massive exposure – but that exposure is paid for by clients’ fees. For example, RE/MAX franchisees contribute around 1–2% of their revenue to a national advertising fund, fueling the brand’s billboards, TV commercials, and those iconic red, white, and blue yard signs.
Similarly, other franchises use a slice of every deal to fund slick marketing campaigns and nationwide offices. This means when you pay a 5% commission, a chunk is indirectly subsidizing that brokerage’s glossy flyers, online ads, and even awards galas – not necessarily selling your home faster.
Brokerage Advertising vs. Service:
Industry financial data shows that brokerages spend anywhere from practically 0% up to 20% of their gross margin on advertising and marketing, depending on their model.
High-split models like Keller Williams and RE/MAX (where agents keep more of their commission) tend to spend less on brokerage advertising – often under 5% of revenues – because agents shoulder their own marketing costs. But traditional franchises with lower agent splits pour much more into big marketing. In fact, some firms on fixed 50/50 splits reinvest heavily in TV ads, glossy magazine spreads, and mailers to promote the brand and generate leads. That promotion benefits the brokerage and helps agents prospect for future clients, but doesn’t necessarily improve the actual service or outcome for your transaction.
Opportunity Cost for Consumers:
Every dollar spent on brand advertising is a dollar not spent enhancing the client’s direct experience or not returned to clients as savings. Consider a homeowner paying a $30,000 commission. If even, say, 5% of that ($1,500) goes to national ads, that’s money that could have been used for extra open houses, staging, or simply left in the seller’s pocket if commissions were lower.
Critics argue that big brokerages maintain high fees to fund a self-perpetuating cycle of marketing – attracting more agents and listings – rather than delivering proportionately better results for individual clients. The marketing helps the brand’s market share, but the cost is baked into the consumer’s bill.
3. The Financial Impact on Home Sellers and Buyers
Thousands Lost per Transaction:
For home sellers, the impact of these commissions is immediate – it’s a direct reduction of their home equity. The fee often comes straight out of the sale proceeds. On a $500,000 home sale with a 5% commission, a seller pays about $25,000 to agents. That could be a significant chunk of their down payment for the next house or retirement fund.
In Canada, where the average home price is around $678,000, a typical 5% commission means roughly $33,900 deducted from the seller’s proceeds. In many cases, that’s equivalent to a year’s salary for the average Canadian. For buyers, the commission cost is less visible but still hits the wallet.
“While buyers do not pay commissions directly, they are likely paying them indirectly through higher home prices,” According to economists Borys Grochulski and Zhu Wang.
Impact on Affordability:
These high fees can have subtle ripple effects. They inflate transaction costs, which can discourage homeowners from selling and moving as freely as they otherwise might (sometimes called the “lock-in” effect).
A seller who might upgrade to a larger home could think twice when they realize they’ll lose 5–6% off the top in fees. For buyers, especially first-timers, the fact that the seller is covering the buyer’s agent commission can mask the true cost of the service. Buyers may over-rely on agents or view their help as “free,” not realizing it’s built into the price.
The average American homebuyer effectively pays a few percentage points more for housing than their counterparts abroad due to this commission system – a hidden affordability drag.
Examples – What Could You Save?: If North American commission rates fell in line with other developed countries (say 2%–3% instead of ~5%), the savings to consumers would be tremendous.
On a $400,000 home, a 5% commission is $20,000. At 2.5%, it would be $10,000 – cutting the fee in half. Scale that nationally in United States: in 2023, about 4.09 million existing homes sold in the U.S.. With a median price near $375,000, sellers paid on the order of **$80–90 **billion in commissions in 2023.
Similarly in Canada, real estate commission rates typically range between 3% and 7%, with 5% being a common standard. For a home priced at $700,000, a 5% commission would amount to $35,000. Reducing the commission to 2.5% would halve this fee to $17,500.
In 2024, approximately 432,390 existing homes were sold in Canada. With an average home price of around $724,800, sellers collectively paid about $15.6 billion in commissions at a 5% rate. Lowering the commission to 2.5% would have reduced the total commissions to approximately $7.8 billion, representing significant potential savings for sellers nationwide.
Even a modest reduction to an average 3% rate could save Americans tens of billions annually. In fact, researchers at the Federal Reserve estimated that an “à la carte” fee-for-service model (where buyers pay their agent directly for only the services they need) could save over $30 billion per year for consumers by eliminating inefficiencies. Those billions represent equity that could have stayed with sellers or reduced buyers’ mortgage burdens – a huge financial win for consumers if changes occur.
4. Legal Challenges and Calls for Transparency
Collusion Allegations and Class Actions:
The long-standing commission system has recently come under intense legal fire in the U.S. In late 2023, a federal jury found the National Association of Realtors (NAR) and several major brokerages liable for conspiring to keep commissions artificially high, in violation of antitrust laws.
Home sellers in the case (a class-action suit in Missouri) argued that they were forced to pay inflated 2.5–3% commissions to buyers’ agents due to industry rules that discouraged any competition or negotiation on those rates. The jury agreed, hitting the defendants with a staggering $1.78 billion verdict (which could be tripled under antitrust statutes).
Notably, some of the big brand franchises were defendants – Keller Williams was in the trial, and RE/MAX and Anywhere Real Estate (parent of brands like Century 21 and Sotheby’s) had to settle pre-trial for $55 million and $83.5 million respectively (without admitting wrongdoing).
These cases exposed internal communications suggesting brokers steered clients away from lower-commission listings and maintained a “standards” commission range, to the detriment of consumers.
Regulatory Scrutiny:
In addition to private lawsuits, regulators are taking action. The U.S. Department of Justice has reignited an antitrust investigation into NAR’s commission rules, after previously withdrawing from a settlement – signaling that the government suspects anti-competitive practices in how commissions are set.
Here at home, the Canadian Competition Bureau is also investigating the real estate industry’s commission structure. In 2024, it obtained a court order to examine whether the Canadian Real Estate Association’s rules (which, like the U.S., require listing agents to offer a set compensation to buyers’ agents on the MLS) are stifling competition and keeping fees high for consumers. The Bureau is probing if these policies discourage buyer agents in Canada from offering lower rates or alternative fee models.
Emerging Changes:
In response to legal pressure, some changes are already underway. NAR (which oversees most MLS systems) recently agreed to rule changes that boost commission transparency – for example, buyers can now see exactly what commission is being offered to their agent in many listings, and MLSs can no longer hide that information. More significantly, as part of settlement talks, NAR has agreed to eliminate the rule that sellers must offer compensation to buyer agents in order to list on the MLS.
This is a seismic shift: it means the industry is moving toward a world where buyers might pay their own agents separately. Some brokerages have even started piloting models where the buyer covers their agent’s fee (often by adding it to the mortgage or through a buyer-broker agreement), which effectively “uncouples” the commissions. Several large brokerage firms, anticipating change, have already publicly called for an end to the mandatory coop commission system. If these legal reforms fully take hold, it could upend the decades-old 5–6% commission norm.
Brokerages may be forced to justify their fees in a freer market – a prospect that has traditional real estate brands bracing for major disruption.
5. Industry Insiders and Experts on Inefficiencies
Many in the real estate profession defend the current model, but an increasing number of experts – from economists to insider whistleblowers – argue the system is broken. The Richmond Federal Reserve researchers cited earlier bluntly call the U.S. commission model an “anomaly” by global standards, one that leads to “elevated home prices, overused agent services, and prolonged home searches.”*.
Why prolonged searches? Because when buyer agents offer essentially “free” unlimited home tours (knowing they’ll get paid via commission if a sale closes), buyers have less incentive to be efficient, and agents may spend time with clients who aren’t serious – costs that ultimately get baked into overall commissions. The Fed economists suggest a more direct fee-for-service approach would align incentives and cut out waste, noting that technology has drastically reduced some tasks (like finding listings), yet commission rates have barely budged over the decades.
Consumer Advocates’ Take:
Consumer advocacy groups have been unsparing in critiquing the big-brand real estate model. The Consumer Federation of America (CFA), for example, conducted studies in dozens of cities and found a remarkable uniformity in commission rates – typically 2.5%–3% offered to buyer agents in nearly every sale, like clockwork. Such uniform pricing, in theory a competitive market would be rare, is seen as evidence of tacit collusion or “cookie-cutter” pricing norms.
Voices Inside the Industry:
Not all real estate professionals are against change. Some forward-thinking brokers and agents acknowledge inefficiencies. Glenn Kelman, CEO of Redfin (a brokerage known for offering lower commissions), has long criticized traditional 6% commissions as arcane. “The way we buy and sell homes in the U.S. isn’t normal — at least not compared with the rest of the world,” notes Ryan Tomasello, an industry analyst, pointing out that most other countries don’t use buyer’s agents in every deal, nor do they pay anywhere near these rates. Even major brokerage executives have quietly admitted the model may need to evolve; for instance, Realogy (now Anywhere Real Estate), which owns brands like Century 21 and Coldwell Banker, suggested NAR remove the requirement for sellers to pay buyer agents. And some high-volume agents concede that cutting commission rates for straightforward transactions (like an easy-to-sell home or when one agent handles both sides) should happen more often – but the big brands historically discouraged deviating from the standard split. This insider sentiment is growing especially as the legal landscape changes. There’s a sense that the traditional franchises must adapt or risk losing consumers to more transparent, cost-effective models.
6. By the Numbers: What a More Efficient Model Could Mean
Let’s recap some eye-opening statistics and what they imply for consumers if the industry changes:
- 5.5% vs 2%: The average U.S. commission has hovered around 5–5.5% in recent years, while in many other wealthy countries total commissions average between 1–3%. This suggests American and Canadian home sellers are paying roughly double or triple the rate paid elsewhere. If North America’s rates fell to, say, 2.5%, a home seller’s savings on a $500,000 sale would be about $12,500.
- $100+ billion: Rough estimate of total commissions paid annually in the U.S. housing market (existing homes). With home sales volume in the trillions of dollars, even a 1% reduction in average commission would return tens of billions back to consumers each year. Federal Reserve economists calculated over $30 billion/year could be saved by eliminating built-in buyer agent fees and letting buyers pay directly
- 3 million vs. the world: America has nearly 3 million licensed real estate agents (realtors and non-realtors) competing for business – far more than any other country. Critics say this oversupply, encouraged by the rich 5–6% commission pie, leads to many part-timers and hobbyists, driving “quantity over quality.” Over half of Canadian agents do only 1 or 0 transactions per year, yet they still get a cut when they do. Consumers effectively foot the bill for an army of agents marketing themselves for a slice of that next big commission.
- Uniform 2.5%: CFA’s analysis of 35 U.S. cities found that in a majority of markets, between 80%–96% of listings offered the same commission rate to buyer agents (typically 2.5% or 3%). Such lack of variation is exceedingly rare in other industries and indicates that price competition on commissions has been virtually nonexistent at the local level. Only an industry-wide practice (or conspiracy) could produce such uniform pricing, which is exactly what the lawsuits allege.
- Possible Future – 1% Listing + Buyer Pays Own Agent: Some experts envision a shift to a model like, for example, 1–1.5% listing agent fee, and buyers either forego an agent or pay their agent an hourly or flat fee. If this were standard, the total commission on a $400,000 sale might drop from $24,000 to say $6,000–$8,000. For an average Canadian home at $678K, instead of ~$34K in fees it could be under $10K. Multiply that across thousands of sales, and you’re talking billions in consumer savings and possibly lower home prices or more equity retained. Of course, agents would adjust by serving more clients or offering higher-value services for separate fees, but the transparent pricing would pressure inefficient operators out and reward those who can justify their costs.
Conclusion: An Industry Ripe for Change
Major real estate brands have long justified their hefty commissions with claims of superior service, broad networks, and powerful marketing. However, an investigative look reveals that much of the 5–6% commission tradition serves to prop up a costly system – funding franchise profits, bloated agent rosters, and nationwide ad campaigns – rather than delivering proportional value to consumers. Home sellers and buyers in North America have been paying billions more than necessary under a model that’s remained stubbornly resistant to technology and competition. Now, with legal challenges forcing greater transparency and threatening to “uncouple” buyer-agent fees, the veil is being lifted on these hidden costs.
For consumers, the takeaway is clear: know what you’re paying for. A commission isn’t a simple reward to your agent – it’s a revenue stream split among many players, some of whose contributions (like corporate branding or an MLS cartel) may not benefit you at all. Fortunately, change is on the horizon. Courts and regulators are pushing the industry to deliver more bang for the buck or let the free market reduce those bucks. Alternative models – from flat-fee MLS listings to lower-cost brokerages and agent rebate programs – are gaining traction, promising to keep more money in consumers’ pockets.
As North American real estate commissions (hopefully) begin to realign with the rest of the world, expect the major brands to adapt their strategies. We may see more flexible commission options, upfront service menus, or loyalty discounts offered by franchises that want to prove their worth. And if they don’t evolve? They risk consumers voting with their wallets for models that do. The era of the “sacrosanct 6%” is ending. In its place, a more transparent, efficient marketplace could emerge – one where buying or selling a home doesn’t require surrendering a small fortune in hidden costs.