For decades, many real estate agents have had little choice but to join NAR and follow its rules regarding local Multiple Listing Services (MLS) \u2014 the databases used by most brokers to list information about properties for sale. Listing brokers typically cooperated with buyer\u2019s agents and split the commission paid by the seller, with the amounts communicated via the MLS in fields that were only visible to agents.<\/p>\n
Plaintiffs claimed that NAR (and brokers that require agents to be NAR members) conspired to artificially inflate commissions through an industry-wide practice requiring the seller to pay commissions to brokers on both sides of the transaction. They believed this helped to uphold a nationwide standard of five to six percent of the sales price, which is significantly higher than the commissions paid in many other countries.2<\/sup><\/p>\n Effective August 17, 2024, NAR will implement the following new policies related to how real estate brokers are compensated to handle transactions.3<\/sup><\/p>\n 1. Commission offers for buyer\u2019s agents can no longer be required or appear in the MLS, though they are still permitted. Listing agents can advertise specific commission offers on brokerage websites and over the phone, text message, or email. Home sellers and their agents will negotiate directly with buyers and their agents regarding compensation.<\/p>\n 2. Prior to touring homes, buyers will have to discuss and set compensation directly with their own agents, as sellers do with listing agents. They will be asked to sign written representation agreements that outline the agents\u2019 services (e.g., showing property, negotiating offers, transaction management) and how much they charge. This is to help ensure that buyers are fully aware of the costs they could be responsible to pay.<\/p>\n These changes are intended to allow more room for negotiation and spur competition, which could conceivably help lower costs for sellers. Commissions have always been baked into transaction prices, so in markets where sellers\u2019 costs fall, home prices would likely be reduced as well.<\/p>\n Some economists believe commissions could drop as much as 30% if buyer\u2019s agents face pressure from potential clients to discount their fees, but savings of this magnitude aren\u2019t guaranteed.4<\/sup> The impact on real estate commissions will ultimately depend on market conditions, which can vary greatly by location, and how sellers, buyers, and agents respond to the new practices.<\/p>\n Like other businesses, brokerages have overhead that includes rent, liability insurance, marketing, and other operating costs. Most individual agents must split sales commissions with their brokers (from about 60\/40 up to 80\/20 for the most productive agents), or they pay fees to the company.<\/p>\n A buyer\u2019s agent sometimes shows property to clients over a period of days to months and may write numerous offers for deals that never come together. Many experienced buyer\u2019s agents \u2014 long accustomed to receiving the same commission as the listing agent \u2014 may be reluctant to work for less, even if they must justify their value more regularly.<\/p>\n Buyers will determine the commission for their own agents, but the money may or may not come out of their own pockets. For example, it\u2019s possible that an offer could be made contingent on the seller paying the buyer\u2019s share of the commission or include a request for a general credit toward closing costs in the amount needed to pay the buyer\u2019s agent. Current lending guidelines and regulations would prevent most buyers from adding commission costs to their mortgages. A rule pertaining to VA loans, which specifically prohibited borrowers from paying agent commissions, has been temporarily suspended.5<\/sup><\/p>\n In some cases, sellers might agree to cover buyers\u2019 commissions, as it has long been customary and could still be in their best interests. Nationwide home prices have risen more than 50% since 2019, and high interest rates have made mortgage payments much less affordable.6<\/sup> This means sellers with equity tend to be in a better position to pay commissions than potential buyers, many of whom may struggle to come up with enough cash for the down payment. For these reasons, a seller who\u2019s willing to pay all or some of the buyer\u2019s commission may receive more offers, and a higher final price, than one who refuses to do so.<\/p>\n First-time buyers in particular \u2014 who were responsible for 31% of existing home sales in May 2024 \u2014 may have more confidence and make more informed decisions if they work with a trusted professional.7<\/sup> But many will need help from sellers to pay their agents\u2019 fees, putting them at a bigger disadvantage than ever against buyers with more access to cash in competitive markets.<\/p>\n Negotiating commissions among all parties is likely to make it harder to strike deals in general, so buyers may have to search longer and write more offers before they are successful. It\u2019s also possible that sellers will see little change in commission costs in the coming months, while the market is in flux. But in time, the new rules could spark innovation that creates new business models and expands lower-cost options.<\/p>\n 1) The Wall Street Journal<\/em>, March 15, 2024 This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. \u00a9 2024 Broadridge Financial Solutions, Inc.<\/p>\n","protected":false},"featured_media":1329,"template":"","meta":{"_acf_changed":false},"newsletter-category":[29],"class_list":["post-1328","newsletter","type-newsletter","status-publish","has-post-thumbnail","hentry","newsletter-category-august"],"acf":[],"yoast_head":"\nPractice changes<\/h2>\n
Implications for buyers and sellers<\/h2>\n
\n2, 4) The New York Times<\/em>, May 10, 2024
\n3, 5, 7) National Association of Realtors, 2024
\n6) The Wall Street Journal<\/em>, June 27, 2024<\/p>\n