Understanding the Issue

In many real estate markets, commission rates typically range from 4-6% of the final sale price, and while these rates have always been negotiable, most agents tend to set their fees based on the local market average - which vary from market to market.

Traditionally, the commission agreed upon between a seller and their agent is split between the seller’s agent/broker and the buyer’s agent/broker. This practice is based on the belief that 1) buyers should have professional representation in such a significant financial transaction, and 2) buyers often lack the financial means to cover their own real estate agent fees in addition to the down payment and closing costs.

Challenges for Sellers in the Current System

Some sellers feel that the commission they pay is too high for the level of service they receive, while others find it unfair that they are expected to cover the buyer’s agent’s fees. Additionally, even though commissions are negotiable, sellers might hesitate to propose a lower rate out of concern that it could diminish the agent’s motivation to market their property effectively. For example, offering a 5% commission instead of the usual 6% might lead agents to put in less effort or time to find a buyer.

Concerns for Buyers with the Existing System

Some buyers are uneasy with the idea that their agent’s fees might be factored into the purchase price, wondering if the price could have been lower if the seller hadn’t had to allocate so much toward agent commissions. Furthermore, some buyers worry about whether their agent is truly working in their best interests, fearing that agents might prioritize showing higher-priced homes to secure a larger commission.

Proposed Settlement Terms

The National Association of Realtors (NAR) has proposed a settlement of $418 million to the plaintiff, to be paid over four years. It is still unclear whether this amount will come from existing resources or if NAR members will face a special assessment to cover the cost.

Alongside the financial settlement, NAR has agreed to implement several changes to their commission-related rules.

Updated NAR Rules on Commissions and What This Means to You

One significant change is that agent compensation will no longer be displayed on the Multiple Listing Service (MLS). This is a biggie. Previously, the buyer’s agent compensation was recorded in a specific field on the MLS, indicating the portion of the sale price that the buyer's agent could expect to earn. This information will no longer be visible. The intent behind this change is to allow buyers to negotiate the buyer’s agent fee directly with their agents.

My Opinion

As a Realtor, I want to clarify that the recent changes in the industry do not mean that sellers are automatically no longer responsible for paying the buyer's agent commission. THIS IS NEGOTIABLE. And does this imply that buyers no longer need an agent? Absolutely not. Even seasoned homebuyers understand that real estate is a complex, ever-evolving field best navigated by professionals. Should buyers reach out to a seller’s agent directly in hopes of striking a better deal? It’s crucial to remember that a seller’s agent works for the seller and is limited in what they can disclose to you. By contacting a seller’s agent directly, you might inadvertently reveal information that could disadvantage you in negotiations.

Yes, the real estate landscape is shifting, but in many ways, it’s still business as usual. The primary changes are procedural, involving more paperwork and ensuring you’re informed about the new rules. As a buyer, your best move is to work with a trusted real estate professional who can guide you through the process. Let the experts handle the complexities so you can focus on finding your dream home.