Purchasing a home comes with various expenses beyond the price of the home itself—from mortgage interest to homeowners insurance. However, there is one expense that some first-time buyers may not be as familiar with: real estate agent fees.

Before embarking on the path to homeownership, it’s critical to know what real estate agent fees are, and how differing fee structures may impact closing costs and hinder affordability in America’s housing market.

Real Estate Agent Fees vs. Closing Costs

Today, real estate agent commissions are negotiated in a sales contract and paid out of the proceeds from the sale. While fees vary, they typically range from 5%-6% of the sales price. The buyer’s agent and the seller’s agent then split these fees.

Because real estate agent fees are paid by the seller, they are separate from closing costs and don’t require the buyer to bring additional cash to the table beyond the agreed upon sales price. Sellers can factor the fee into the list price when marketing their property for sale.

So, what fees do buyers pay?

Before securing the keys to a new home, buyers pay closing costs, a range of fees that cover loan processing, title company fees, potential surveyor costs, recording of the real estate deed, homeowners insurance, and any taxes or homeowners association dues.

The current practice of keeping real estate agent fees separate from closing costs creates greater access to building equity and generational wealth for first-time, low- and middle-income, and, ultimately, all buyers. In fact, from 2010 to 2020, the current practice enabled more than 6.3 million Americans to achieve the dream of homeownership and build about $8.2 trillion in wealth.

Despite all this, some individuals are pursuing action to change the real estate agent fee structure, advocating for buyers to take on the cost.

The Looming Impact of Changing Fee Structures

In cities throughout the country, people are raising questions about the current real estate agent fee structure and urging leaders to alter the structure so sellers would only pay their agent’s fee and buyers would be required to pay their agent’s fee out of pocket at closing.

In a housing market already roiled by rising mortgage rates, low inventory and high sales prices, this significant change would only heighten affordability and supply challenges, putting the dream of homeownership further out of reach for many households.

If buyers had to pay agents directly at the time of closing, the total cost required to close on a home—the downpayment, closing costs and the real estate agent fee—would rise significantly, from about $16,250 to as high as $23,015 (based on a 3% commission). As a result, buyers’ budgets would be reduced by about 28%, making the pool of housing options smaller for many Americans.

Additionally, a change in fee structure would cause persistent racial and economic disparities to rise.

Today, the homeownership rate for Black Americans is 44% compared to the 72.7% homeownership rate for White Americans. If buyers had to pay their agents directly at the time of closing, this gap would only widen as the number of Black renters who would be able to qualify for a mortgage would fall by 26%.

About 9 in 10 home buyers use a mortgage to finance the purchase of their primary residence, and many of these individuals already face significant obstacles to acquiring the upfront cash to pay for a downpayment and closing costs. Adding another fee to the mix is not a viable solution.

What’s more, this change would harm sellers too as it would limit the number of buyers who could compete for a home.

The Bottom Line

The current fee structure is a pro-consumer, pro-competitive model that serves the best interests of buyers and sellers alike. As individuals continue to challenge this model, it’s critical that everyone on the homebuying journey is aware of how potential changes could impact the dream of homeownership.