Prompted by a lawsuit, the National Association of Realtors® (NAR) has agreed to new rules surrounding the commissions in real estate transactions. These rules have taken effect as of August 17, 2024. So what does this all mean for Buyers and Sellers?
Sellers
Traditionally, when sellers decided to list their home, they chose a real estate agent and entered a listing agreement that automatically included a commission for the buyers agent. Typically the total commission was 5%-6%, to be split between their agent, and the buyer’s agent, all paid by the seller. (However, one has to assume that the cost of commissions was factored into the asking price of the property.) The Buyer’s Agent Commission rate was also included in the Multiple Listing Service (MLS) data sheet, so buyer’s agents could see how much the seller was offering when looking at listings to show their clients.
Now –
Listing agreements have been updated to make it more clear what commission is to be paid, and to whom. Buyer’s Agent commission is no longer allowed to be listed in the data sheets in the MLS. Seller’s agents can communicate commission concessions verbally, via text or email. Seller’s Agent commission concessions can also be included in ads, and on Agent’s or Brokerage website. Seller’s are not required to offer Buyer’s Agent commissions, however, not doing so may limit the potential buyers pool.
Buyers
Traditionally, buyers would find an agent they wanted to work with and there would be little conversation about the commission to be paid for their services. Buyers would be shown properties, sometimes without entering into a written agreement (Buyer Representation Agreement) with their agent. The fee the Buyer’s Agent earned was determined by the seller of the property that the buyer decided to buy.
Now-
Prior to a Buyer’s Agent showing any property, there must be a signed document detailing the buyer’s responsibility in providing compensation to their agent and the services to be provided. In addition to the traditional full Buyer Representation Agreement, there is now a Short Form that can be used for even a single showing. Buyer’s now take a much more active roll in determining the rate that their agent will be paid for the services provided.
Contract Negotiations
Buyer’s Agent commissions can be part of the contract negotiation process. In addition to closing costs, mortgage rate buy-downs, and other concessions, buyers can request that their agent’s commission be paid by the seller at closing. Currently, agent commission cannot be included in home mortgages. Buyers will need to come out of pocket at closing to pay their agent if the seller is unwilling to pay.
We will have to wait and see how these new rules will change the home buying and selling process. The hope is, that while the process might be a little more complicated, all parties will have a clearer understanding of representation and compensation.