On Aug. 17, real estate agents across the country began following new practices on how commissions are paid. The rules change the way buyers and sellers approach real estate transactions. The Rules Have Changed.
By Debra Kamin
Published Aug. 16, 2024Updated Aug. 20, 2024
Sweeping changes to the real estate industry are now in effect. This comes five months after the National Association of Realtors agreed to a landmark settlement over the way agents are paid commissions.
On Aug. 17, real estate agents across the country began following new practices that require buyers to sign a form before an agent can show them a home, and may radically lower the commission they ask sellers to pay during a home sale.
For years, the standard commission has been 5 to 6 percent, shouldered by home sellers and then split between real estate agents for the seller and the buyer. That fee, while technically negotiable, was at the heart of a lawsuit brought against N.A.R. by a group of home sellers in Missouri, who said the fee was inflated. The home sellers argued that N.A.R., and brokerages who required their agents to be members of N.A.R., had violated antitrust laws by mandating that the seller’s agent make an offer of payment to the buyer’s agent, and setting rules that led to an industrywide standard commission.
Those rules are gone.
Agents are no longer allowed to make offers of commissions on the Multiple Listing Services. This severs access to the backdoor channel agents have long used to communicate payments. So what do the changes mean for you? Here’s what to expect.
What do I need to know if I’m buying a home?
Home buyers now need to sign a written agreement with an agent before they tour a home. These agreements, meant to stipulate exactly how much a buyer is expected to pay to their agent, are required by the settlement, and are not entirely new — 18 states already required them before N.A.R. lost in court.
But now the forms are everywhere, with little uniformity to the fine print.
“Everyone is calling their forms different things. There’s no industry continuity yet. We’ll get there, but right now it’s going to be rough and tumble as this rolls out,” said Ryan Tucholski, the chief executive of the West Volusia Association of Realtors, a local association in Central Florida. He said he has been fielding a steady stream of questions from the Realtors in his association, many of whom were in the middle of transactions when the rule changes took effect. “It’s like changing the oil of the car while it’s running,” he said.
‘Definitely Confused’: New Real Estate Rules Sow Uncertainty
Many agents plan to ask buyers to cover a commission of 2.5 or 3 percent to make up the portion. The portion that was previously covered by the seller. Consumer Federation of America, an advocacy group, are advising buyers to consider offering a flat fee.
“The broker’s fee should be clearly stated, always as a dollar figure or as an hourly rate,” he advised. “The dollar value of today’s percentage commissions is often underestimated by buyers. Moreover, buyer agents should not have a financial incentive to be paid more the higher the sale price.”
Those straightforward conversations, he said, will eventually drive commissions down, even if headwinds drag out the process. Laura Ellis, a broker in Chicago who serves as chief strategy officer and president of residential sales at the brokerage Baird and Warner, agrees. “Agents are going to have more direct conversations with buyers about how they’re going to be compensated. For 100 years or so many agents were able to tell buyers, ‘Don’t worry, I’m free, we’ll go have a lovely sunny afternoon of looking at houses and go from there.’ And that whole conversation is different now,” she said.
What do I need to know if I’m selling a home?
Home sellers are now due for some immediate relief.
Because the settlement eliminates rules that require sellers’ agents to make an offer of commission to buyers’ agents, most sellers’ agents are expected to ask their clients to pay only for one side of the commission pie — a number that averages 2.5 to 3 percent now, and may be pushed downward by competitive pressure as the settlement changes continue to roll out.
Richard Hopen, a former broker who has worked with Compass and Redfin and now runs a business focused on educating home buyers, said that sellers should be informed about the changes, and make sure they understand what they’re being asked to pay.
“Sellers and agents should talk openly about reducing or even eliminating the buyer agent fee and how that could impact the seller,” he said.
How does the settlement apply to people who just sold their home?
The March 15 settlement was a nationwide class-action settlement that applies to nearly every American homeowner who sold a property in the last five years. N.A.R. settled for $418 million, but the settlement also ensnared more than 20 brokerages that have also all settled for millions. The total damages are now more than $1 billion. Payouts for individual home sellers are not expected to be significant. But, the total amount that an average is entitled to will depend on how many people submit claims. Eligibility varies depending on the state you live in. The brokerage your agent worked with, and the date your home listing was entered into a multiple listing service.
Debra Kamin reports on real estate, covering what it means to buy, sell and own a home in America today. More about Debra Kamin
A version of this article appears in print on Aug. 18, 2024, Section RE, Page 8 of the New York edition with the headline: What Changes Mean For Buyers and Sellers. Order Reprints | Today’s Paper | Subscribe
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