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News and changes about the new real estate commission rule in the U.S.:
Terms to Know:
MLS - Multiple Listing Service: the local agency where Realtors posting listings for other Realtors to view (also called cooperation). It listed what % of a commission will go to the Selling Agent.
Selling Agent - The Agent that represents the Buyer and thereby sells the property, also called the Buyer's Agent.
Listing Agent - The Agent who represents the Seller and lists the property for sale.
Listing Agreement - The contract between the home seller and the Broker/Listing Agent.
Broker - The Entity that represents the Agents or Realtors, usually an office or a large franchise, but an Agent can also be his or her sole own Broker.
Purchase Agreement - The offer from a Buyer to a Seller to purchase the listed home.
The Settlement which set this new rule
In March 2024, the National Association of Realtors (NAR) agreed to pay $418 million to settle antitrust lawsuits alleging it conspired to inflate agents' commissions.
Background
Historically in the United States it has been standard practice to have the seller pay for the Listing Agents commission as well as the Buyer's Agents commission. Usually depending on the area and the market the Listing Agent would list the house for sale after the seller and Agent reached an agreed upon commission compensation of anywhere from 5-6% on average. This commission, once in the Listing Agreement, was legally binding and was usually split between the Listing Agent and the Buyer's Agent. The compensation portion of the commission for the potential Buyer's Agent - usually 2-3%, was also advertised on the Multiple Listing Service (MLS). Once this commission was listed on the MLS, it was also legally binding to the seller and could not be negotiated.
What has changed is that this commission to the Buyer's Agent can no longer be advertised on the MLS. The lawsuit found that is was unfair for the seller not to be able to negotiate the Buyer's Agent's commission the same way that a seller can negotiate the other terms of the Purchase Agreement. And while legally the seller can still pay the Buyer's Agent a commission, it just can't be put on the MLS under the traditional Seller's commission field. It now can be negotiated in the Purchase Agreement or in the Listing Agreement. What has not changed is the seller will still need to agree upon the commission paid to the Listing Agent in the Listing Agreement.
Traditionally a Buyer's Agent would represent Buyers often times without a contract because they were paid through the Seller if their buyer's offer to purchase was accepted. Now with the new rule changes the Buyer's Agent must have a signed contract with their buyers prior to viewing a home.
No more posting commissions on MLS
Listing agents can no longer post buyer-side commissions on the multiple listing service (MLS). This is to make it clear that commissions are negotiable and can be paid by either party.
Negotiation
Buyers and sellers will negotiate who pays the buyer's commission to the Buyer's Agent and how much is paid. Buyer and sellers must be given a statement that all Broker fees and commissions are not set by law and are fully negotiable.
Other ways to communicate
Sellers and Buyer's Agents can still agree on the amount off the MLS by offering compensation verbally, in emails or texts, and even on their brokerage's own website.
What does it mean for Buyers
The seller can still pay the Buyer's Agents' commission at the close of escrow.
The buyer will need to sign an agreement before touring any homes. Buyers will need to negotiate upfront how the Buyer's agents' fee are to be paid. The agent can still negotiate this amount with the seller in the offer.
The seller can negotiate this in the offer or split between buyer and seller.
The buyers commission can be financed into the buyers loan amount.
Sellers may be willing to part with their house for less if they pay less in commission.
In a Seller's market, buyers may have to pay the commission out of pocket for having an Agent represent them.
What does it mean for Sellers
Sellers may elect to not to pay a commission to the Buyer’s Agent. But they may also risk losing that buyer to another seller who will offer a to pay the commission as it has traditionally been.
Sellers may elect to offer a certain percentage of the sale or a flat fee to pay towards the Buyer's Agents commission or closing costs.
Sellers may get more offers if they are willing to pay a commission. More offers often mean a higher selling price. On the other hand, they may get less offers if they don't offer something upfront.
The Bottom Line
Many Listing Agents are still urging their sellers to offer a commission upfront to the Buyer's Agent as has been the tradition. The reality is most buyers can barely afford home prices in San Diego, and in most cases will likely go to where sellers are offering to pay their Agents commission, so they don't have to. Ultimately, the name of this game is negotiation. This will end up being yet another negotiated item that will be determined by the strength of the market and the negotiating skills of your Realtor.
Just like everything else, if it's a buyers market - buyers can ask for more. If it's a seller market - sellers can say no more. It all depends on your property and how many offers you get and how fast you want to sell.
The important thing for sellers to remember is that the buyers commissions will often be negotiated in the accepted offer and is therefore binding, whereas any repairs are negotiated later after the offer is accepted. It's something for agents and sellers to be mindful of.
The Good, the Bad, and the Ugly
Good for sellers as they may end up having to pay less.
The bad news for sellers is that it's more to negotiate (if it's not decided upfront) for them and ultimately their Agents.
Bad for buyers as they may end up having to pay more out of pocket, may decide to forgo using an Agent, which would be bad for Agents and buyers.
The ugly is how this will equate in the housing market. Will it slow things down, i.e. less buyers?
If and when interest rates go down, that will bring some relief for buyers to get back into the market.
If you have more questions on how this rule will impact you - please give me a call and I would be happy to chat more.
Disclaimer - This does not constitute legal advice and is only an interpretation of the facts and in no way is intended to represent law. For an Executive Summary of the facts see the following NAR document: https://www.nar.realtor/sites/default/files/documents/mls-policy-changes-summary-2024-05-03.pdf
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