The New Rules Surrounding Real Estate Commissions

These days, one cannot scroll through the online news without seeing articles on the housing situation in America. Whether it’s the lack of available homes for first-time buyers, the sharp increase in home prices, or high interest rates, there is plenty to read about.  One topic recently in the news are the new realtor commission rules. 

On March 15, 2024, the National Association of REALTORS® (NAR) announced an agreement ending the litigation of claims brought on behalf of home sellers related to broker commissions. The lawsuit against NAR claimed the broker commission rule pushed up real estate prices and caused some buyer’s agents to steer their clients to homes with the highest fees. As it was just another news item about home prices, the settlement served as static in the background. What I did glean from the news was that broker commissions would be declining. Great news – until I realized that wasn’t true at all. 

Breaking Down the Settlement 

The settlement includes a payment of $418 million to eligible home sellers. Anyone who sold a home after October 31, 2019, that was listed in an MLS and for which a commission was paid will be eligible for payment. NAR figures show that more than 21 million homes were sold in that period. With so many claimants, the financial payment to home sellers will be $13 apiece, if each home seller submits a claim. Keep in mind lots of people do not submit claim forms, in which case, the settlement will be divided among those who do seek their portion of the settlement, potentially causing the settlement price per claimant to increase.  

The monetary piece of the settlement is insignificant considering the hefty amount sellers typically pay buyer’s agents, in addition to what they pay their own agents.  However, the impact of the settlement on the commission rules have people calling the settlement “historic” and a “landmark case” for the nation’s real estate market. 

In most situations, the seller pays the realtor fees. Under existing language, a seller’s agent must disclose the commission cut for the buyer’s agent when listing homes on NAR-affiliated multiple listing services (MLS). In fact, the seller’s agent is required to make “blanket unilateral offers of compensation.” However, the settlement – anticipated to be effective mid-July – prohibits NAR from requiring a broker advertising a home for sale on the MLS to offer any upfront compensation to a buyer’s agent. Because buyer’s agents will no longer see fees on any MLS listing, they cannot steer their clients to properties that offer lucrative commissions. Brokers and consumers are now free to negotiate the rate of compensation off the MLS. It is believed that “[o]ffers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers.”

Because the settlement does not indicate how buyers’ agents will be paid, there is concern that this new rule may hinder home purchases. With the possibility that buyers will be required to pay their realtor’s commission, it could be an extra burden for first-time homebuyers and lower-income consumers to come up with the additional cost of paying an agent for representation and may make homeownership unattainable.  While a buyer can still ask a seller for a concession that includes money to help cover the buyer’s agent compensation, a seller with multiple offers will likely refuse such a request or go with an offer from a buyer who is not asking for a concession.

Still another camp contends that nothing will change despite the new rule. The rule does not eliminate seller-paid commissions, so things can remain status quo. Further, agents will now just have to pick up the phone to find out the commission on a sale. If the listing agent is unwilling to pay for the buyer’s fees, agents may avoid showing their client the house. Steering will continue despite the roadblock. 

Another new rule imposed by the settlement is that realtors and buyers must sign a contract regarding commission before the buyer can tour any homes.  The contract must specify the amount or rate of the agents’ commission. A work-around is to indicate that the seller will reimburse the buyer a percentage of the purchase price for the buyer’s closing costs. 

The Bottom Line

Sorry to break it to you – the 6% commission is likely here to stay. 

One explanation explained the new rule concisely: The effect of the new rule is simply a decoupling of the buyer fee from the seller fee. The same total amount will likely be paid; however, the payment may now come from the buyer just as often as from the seller. Each commission will be a negotiation rather than an automatic offer of compensation.

The information provided here is for general purposes and should not be considered as legal, financial, or investment advice. 

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