How New Commission Rules Are Shaking Up the Role of Your Realtor

Buying or selling a home in the U.S. is about to get a lot more interesting—and possibly a bit more complicated—thanks to some major changes in real estate commission rules. These shifts are coming on the heels of a legal settlement involving the National Association of Realtors (NAR) and several large brokerages. Accused of conspiring to inflate real estate commissions, these industry giants now face new regulations set to take effect in August 2024. The goal? To bring more transparency and competition into the market, which could mean big changes for both buyers and sellers.

What Led to These Changes?

For years, when you sold a home in the U.S., you’d typically pay a commission of around 5% to 6% of the sale price. This commission was then split between your agent and the buyer’s agent. Critics have long argued that this setup stifled competition and kept commission rates higher than they needed to be, with buyer’s agents often steering clients toward homes offering them the highest commissions.

But all that’s about to change. In response to a legal settlement, the NAR and several major brokerages have agreed to pay $418 million in damages and make significant changes to how commissions are negotiated and paid. These changes are designed to open up the process, giving consumers more power and potentially lowering commission rates.

The New Rules: What’s Changing?

No More Preset Compensation Offers

Previously, when a home was listed on NAR-affiliated multiple listing services (MLS), the listing agent had to include an offer of compensation for the buyer’s broker. This requirement is now gone. What does this mean for you? Buyer’s agents won’t have preset compensation offers when they look at a home, which could lead to more honest and transparent negotiations.

Negotiating Agent Fees Directly

Now, it’s up to buyers to negotiate how much they’ll pay their agents. This shift gives buyers more control and could lead to lower commission rates. Instead of the seller deciding how much the buyer’s agent gets, the buyer and their agent will have to hash that out themselves.

Written Agreements

Before you get too deep into a transaction, buyers will now need to sign an agreement spelling out exactly how much their agent will be paid. This ensures everyone is on the same page and helps avoid any surprises down the road.

Potential for Lower Commissions

With more competition among buyer’s agents, there’s a good chance commission rates could drop. Some industry experts even predict that commissions could fall below 4%, or possibly even to 3%, as agents work harder to win business in this new, more transparent marketplace.

What Does This Mean for You?

For Buyers

You might face some additional upfront costs now that you’re responsible for paying your agent directly. This could make buying a home more expensive in the short term, especially if you’re not prepared for these fees. But on the flip side, you’ve got more power to negotiate—and possibly lower—your agent’s fees. Some buyers might even decide to go it alone to save money, but that could be risky if you’re not familiar with the ins and outs of real estate transactions.

For Sellers

You’ve got more flexibility now when it comes to paying commissions. You can decide whether or not to offer a commission to the buyer’s agent. This could save you some cash, but it might also make your home less attractive to potential buyers. And because commissions have traditionally been baked into the sale price, these changes could also impact how much you can sell your home for. You might need to adjust your pricing strategy to reflect these new commission dynamics.

What’s Next?

While these changes are designed to help consumers by promoting competition and transparency, there’s some concern about what this will mean for the real estate market as a whole. Some experts worry that first-time buyers might struggle to afford representation, potentially leading to a less informed buying process. There’s also the possibility that a “price war” among buyer’s agents could drive down fees but also result in lower-quality service as agents compete on price rather than expertise.

In the long run, these changes could make the real estate market more dynamic and consumer-friendly, giving buyers and sellers more control over the costs involved in buying and selling homes. But the transition won’t be easy, and the impacts will likely vary across different regions and market segments.

So, as the industry shifts under these new rules, both buyers and sellers will need to be more informed than ever to navigate this evolving landscape and make the best decisions for their needs.

Reference:

• What high-profile commission changes mean for homebuyers and sellers
• What agents need to know about commission rule changes