You’ve probably read the bold headlines about the changes coming to the Real Estate industry and may be wondering what that means to you if you’re in or entering the market as a seller or buyer; or just curious about changes in general. Below is a very basic explanation and includes my personal thoughts as an agent who represents both sellers and buyers.
The National Association of Realtors (NAR) was sued in a class-action lawsuit by home sellers claiming real estate brokers inflated commissions and home prices by “requiring” the sellers to compensate the buyer’s agent on the Multiple Listing Service (MLS). NAR agreed to pay $418 million in damages to these sellers; in effect changing the way brokers and agents get paid for their services. As a result, the MLS, which is controlled by NAR, starting in July 2024, will no longer allow brokers to publish what (or if) they will compensate the buyer’s broker. Also happening in July, all buyers will be required to sign a Buyer Representation Agreement, which includes the buyer broker’s compensation. In this agreement, a buyer will need to agree to compensate their broker if a seller will not. It’s important to note that home sellers can still offer compensation to buyers; it just cannot be published in the MLS, which is where the majority of homes sold in the US are listed. If the seller does compensate the buyer’s broker, the buyer will not be obligated to pay.
Commission is, and always has been, negotiable. 5% to 6% of the home sale price has been “typical,” but not guaranteed. It’s also been “typical” that the sellers have paid that commission to their broker and the broker that represents the buyer out of the proceeds of their sale. When a broker takes a listing, the seller agrees on what they’ll pay the buyer’s broker, and that percentage is listed in the MLS. Brokers know in advance what they will be compensated for a particular home when they represent a buyer. Starting in July, that compensation will not be published and will need to be negotiated.
There are benefits to sellers that offer compensation to buyer’s brokers. It increases the pool of buyers who can afford their home. More buyers means more competition, which often leads to a higher sales price. Most buyers are struggling to come up with the down payment and closing costs. To fund an additional 2.5%-3% to pay their broker (money that cannot be financed into their loan) may make that home purchase impossible. If a buyer cannot pay their broker, they can’t afford your house.
Many people think the listing agent does all the work. There is a lot of work when you list the property and a lot of money spent by that agent. Even in the scorching hot market we’ve seen the past few years with high demand and low supply where most homes sell quickly, the listing agent has a lot of work to do and spends a lot of money to advertise their listings. Buyer’s agents work just as hard, and often that hard work lasts for years before their clients buy and they get paid. No one gets paid until a transaction closes. Agents on both sides of the transaction provide market research, negotiation advice, interior design, cleaning, transportation, therapy…the list goes on and on. Most of this work takes place behind the scenes, but it does take place, and often the only way to really understand how much work your agent does, is to experience them doing their job poorly.
As Realtors, we’re all waiting to see how this shakes out. My broker, Rodeo Realty, and I believe that most sellers are savvy enough to understand it is in their best interest to compensate the buyer’s broker. And for those buyers who are worried about their ability to pay their broker, they should be pickier about which agent they work with. Buyers should work with an agent they can trust to negotiate their own broker’s commission so as not to limit the pool of potential homes. This is going to be an adjustment and will add to the negotiation process during a transaction, but ultimately, I am optimistic that business will still get done; sellers and buyers will end up satisfied with their transactions, and both brokers will be compensated for their work. It is tricky, and it changes quickly. If you have questions or would like to discuss further, please reach out.