What’s Happening with Real Estate Agent Commissions?

Last Friday, NAR (the National Association of Realtors) announced a settlement which included a major change to real estate commissions. This settlement still needs court approval to be finalized.

Several media sources have been spreading misinformation about commissions with headlines including that buyers agents will no longer be compensated. This is far from accurate.

Historically, sellers have paid for real estate commissions from the proceeds of the sale of their home. Many would say that the buyers are actually paying for some of that commission as it’s built into the price of the home that they are purchasing. The amount of the commission may vary, as it is negotiable and probably became more-so after companies like Redfin entered the real estate arena offering lower commission rates and/or rebates of their commission to the buyer.

Here are some of the changes from NAR’s settlement:

• Offers of broker compensation (commission) are prohibited in the MLS (multiple listing service). Previously, real estate agents could promote “x% commission” as a feature on a listing. Obviously the higher the commission, the potential to attract more buyers agents with their clients over a similar listing offering a lower commission. NOTE: This does not mean that commissions will not be paid – it simply means it will not be listed on the MLS.
• MLS Participants (real estate agents) working with buyers must enter into a written agreement. This is intended to help buyers understand what services they will be receiving from the buyers agent. I’m sure a lot of mortgage professionals could be a little jealous over this although I’m not sure there is anything that would prevent a buyer from terminating the agreement should they decide to work with a different real estate agent.

From NAR’s Fact Sheet:

• There will continue to be ways in which buyer brokers could be compensated, including through offers of compensation communicated off MLS.
• The types of compensation available for buyer brokers would continue to take multiple forms, depending on broker-consumer negotiations, but not limited to:
  • Fixed-fee commission paid directly by consumers
  • Concession from the seller
  • Portion of the listing broker’s compensation
• Compensation would continue to be negotiable and should always be negotiated between agents and the consumers they serve.
• The practice changes will go into effect in mid-July 2024.

Will buyers agents no longer be compensated and no longer exist? I don’t think so! Buyer’s agents play a critical role in the home buying process. Something that many consumers don’t understand is that a listing agent represents the seller and it’s their job to do all they can to sell the home for the most money with the highest profit for the seller. When a buyer works directly with a listing agent, they’re losing valuable protection of having a real estate professional represent their interest. (I am not a fan of “dual agency” and I also believe that real estate agents should not also act as your loan officer).

Will these changes make it tougher for first time home buyers? There’s concern that if a buyer has to come up with 2-3% of the sales price in addition to down payment and the traditional closing costs associated with buying a home, that it will push them out of the market. The commission paid to the buyers agent does not have to be treated as a closing cost to the buyer. There are other strategies available, including a concession from the seller as referenced in NAR’s fact sheet. What’s ironic is that although part of NAR’s reasoning for the settlement is to “decrease costs for home buyers…and increase the potential buyer pool for sellers”.

Right now, it probably seems more daunting for buyers’ agents (and buyers) because we’re in a seller’s market and have been for a while. The seller is in the drivers seat and could theoretically say they will only pay for the listing agents commission. The seller does risk having fewer offers on their home when other sellers/listings are offering to cover the buyers agents commission.

When there is a “commission gap” when the seller is unwilling to pay for the buyers agent commission, there are other options available. As a buyer and buyers agent, it’s important to connect with your mortgage professional before presenting an offer so we can work together to create a strategy for offer.

In my opinion, commissions will most likely still be paid the same way, from the proceeds of the sale of the home and/or built into the price of the home. Very few home buyers are going to write a check for their buyer’s agents commission. What this settlement really brings out is transparency and the opportunity for agents to discuss their services, what value they provide and (oh yah) the costs associated with the services they provide.