On August 17, significant changes to real estate agent commission rules will take effect, reshaping the landscape for buyers and sellers alike. This change may lead to lower costs for consumers, but it also introduces a layer of complexity that could create confusion among agents, buyers, and sellers. As we navigate through these alterations, it is vital to grasp how these new rules will impact the buying and selling process, especially concerning commission negotiations.
Traditionally, real estate commissions have been a standard 5% to 6% of the sale price, divided between the seller's agent and the buyer's agent. However, the upcoming changes mean that sellers can no longer automatically offer compensation to buyer brokers on Multiple Listing Services (MLS). This shift raises questions about how commissions will be negotiated and whether buyers will need to bring more cash to the table.
As we delve deeper into the implications of these changes, we will explore how commissions currently operate, analyze the problems with the existing system, and outline what buyers and sellers can expect moving forward. Understanding these dynamics is crucial for anyone involved in real estate transactions in the near future.
What You Will Learn
- The current structure of real estate commissions and how they are split between agents.
- The implications of recent lawsuits and changes in commission regulations.
- How buyers and sellers can navigate the new commission negotiation landscape.
- Potential impact on home prices and buyer representation in the market.
As the real estate industry adapts to these changes, both buyers and sellers must stay informed about their rights and options. The new regulations present opportunities for negotiation and flexibility that can result in better outcomes for consumers.
On Saturday, industry rules governing real estate agent commissions will change — a shift some experts say could ultimately lower costs for consumers buying and selling a home.
However, the changes are complicated and creating uncertainty among agents, buyers and sellers who must all adjust to the new system effective Aug. 17.
Here’s what you need to know.
How do commissions currently work?
Typically, at the close of escrow, a seller uses their proceeds to pay a 5% to 6% commission, with half going toward their agent’s brokerage and half going to the buyer agent’s brokerage.
Agents get a share of the commission paid to their brokerages.
Was there a problem with that system?
Some observers say yes. Today, buyers can easily find homes for sale online and don’t need an agent to tell them about potential open houses. Yet, commission rates have stayed relatively steady for decades.
In other countries, commissions are often half what consumers pay in the United States, according to research from Norm Miller, emeritus professor of real estate at the University of San Diego.
In a series of antitrust lawsuits, home sellers have alleged a major reason for the disparity are industry rules from the National Assn. of Realtors.
Under those rules, seller agents had to publish an offer of compensation to the buyer’s broker when listing homes on NAR-affiliated multiple listing services, or the MLS.
Listing agents could offer zero dollars in the compensation field and the Realtors have said commissions were always negotiable. But the lawsuits alleged the requirement to post an offer reduced competition and kept commission rates artificially high. In large part this was because buyer’s agents “steered” their clients to homes that offered higher commission rates, according to the lawsuits.
In March, the Realtor group agreed to settle and make changes.
What will be different?
If you are a seller, your agent can no longer make an offer of compensation to buyer brokers on the MLS.
Buyers will need to directly negotiate their own representative’s compensation and sign an agreement before working with an agent detailing how much their broker will be paid.
If I am a seller does this mean I don’t need to pay buyer broker commissions now?
Not really. As a seller, you always could choose not to pay commission to the buyer’s broker.
However, listing agents didn’t always explain that. When they did, they often encouraged sellers to pay to ensure buyer’s agents would bring buyers to open houses.
Sellers may still want to pay buyer broker commissions for the same reason and they are free to do so under the new rules — as long as their agent doesn’t advertise the offer on the MLS.
If I am a buyer, do I need more cash on hand to pay my broker?
Not necessarily. Though as mentioned earlier, before getting an agent you will need to agree how much your broker will get paid. A seller can later agree to pay that amount, but the buyer broker can’t be compensated above what the buyer agreed to.
Does this mean buyers are worse off?
Maybe. Maybe not.
If sellers decide to not pay buyer broker commissions, it could force buyers to come up with additional cash
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