New rules for the residential real estate market hit Saturday, and anyone in the market to buy or sell a home will face unfamiliar and potentially confusing processes.
The “practice changes” stem from a 2023 legislative decision regarding the way real estate agents are compensated.
Traditionally, when selling a home, a commission of about 5% to 6% was paid by the seller and split between the buyer’s and seller’s agents. That system helped keep commissions higher than they otherwise would have been, the lawsuit alleged. It also meant that a seller had to pay an agent to represent the other side of the deal, a practice many observers considered inappropriate.
said Stephen Probeck, a senior fellow with the Consumers Federation of America, who has been advocating for real estate commission changes for decades. “The main argument is that it’s not fair for sellers to pay both the listing agent and the buyer’s agent.”
Now, a seller must decide how much to pay the buyer’s broker. Whatever the decision, that information will no longer be included in the “Multiple Listing Service,” or MLS, the official real estate data service used by local real estate associations.
Whatever the seller decides about compensation can be communicated personally by phone or text, or advertised through social media, a sign on the lawn, or other informal means.
Buyers, meanwhile, must sign a contract with their own broker before they start looking at homes. The buyer and the agent must agree, and in writing, how much the agent can expect from the buyer.
There is some latitude in what exactly that means. A recent interpretation of the National Association of Realtors’ rules states that it “must be specific (eg, $0, X flat fee, X percentage, X hourly fee) — and not open-ended (eg, as ‘buyer broker compensation’ No. It should be as much as the seller offers to the buyer.
“Anytime we have an opportunity to have a conversation with a consumer about the value we bring to the transaction, the services we can provide them in one of the biggest financial transactions of their life, and we expect to get paid, it’s completely negotiable, and that’s a good thing,” said Kevin Sears, president of Real Estate.
The group is a powerful Washington lobby with more than 1.5 million member agents – about 85% of real estate agents in the country.
“Consumers are educated and empowered, and the more conversations we have with consumers, the better off everyone is,” Sears said.
Many elements of the new procedures will be familiar to many real estate agents, buyers and sellers. Many states have long required buyers to sign a brokerage agreement before starting the process. With the rise of alternative brokerage models like Redfin, many homeowners are aware of options beyond the traditional system of paying 3% to a listing agent and 3% to a buyer’s agent.
But questions about what the changes will mean in practice have dogged agencies across the country. What happens when a buyer has money to cover their broker a certain amount, but falls in love with a home that costs more than the commission works out? On the other hand, what happens if a particular home seller is also willing to compensate the buyer’s broker?
Many real estate agents say a process that brings transparency creates more confusion.
“Now a buyer’s agent has to access every listing they’re going to show to find out what the commission is,” said Aaron Farmer, owner of Texas Discount Realty in Austin.
In Austin, a booming pandemic market turned sharplyFarmer thinks it’s natural for sellers to want to sweeten a deal for buyer’s brokers, leading to a build-up of unsold inventory. That may not be the case everywhere, however, and Farmer worries that egos may get in the way of smart business decisions in some transactions.
Andy DeFelice, owner of Savannah, Georgia-based specialty buyers’ realty, thinks first-time buyers stand to lose the most from the rule changes. Many people who are already strapped for cash may have trouble coming up with the money for the commission, forcing them to negotiate on their own, she thinks.
“Don’t force our clients into a situation where they don’t have representation in the biggest transaction of their lives,” DeFelice said. “If you’ve never done it before, it’s not easy. There are many steps to buying a home. You know, a good termite inspector, a good insurance agent, a good lender?
DeFelice says the industry will move quickly beyond what he calls the “hiccup” of Saturday’s deadline and adapt relatively quickly, but others expect big changes.
“For consumers, things aren’t going to change much in the immediate future,” Probeck told USA TODAY. “But it’s like a dam creating a leak. I’m sure the industry will be completely different within five years.”
Farmer of Texas Discount Realty agreed.
“I’m already seeing a lot of people saying, ‘I’m going to leave the industry, I don’t want to deal with the changes,'” he said. “If there are fewer agents, that will help the industry. You can lower commission rates that way and make more volume.”
Andrea Riccier covers the housing market.
