August 19, 2024 | 2 Minute Read
Real estate agents across the U.S. are preparing for significant changes in their industry as new regulations took effect on August 17. These rules stem from a $418 million settlement by the National Association of Realtors (NAR) in March, bringing major shifts to how agents are compensated for helping clients buy and sell homes.
Traditionally, home sellers have been responsible for paying a commission of 5% to 6%, typically split between the seller’s agent and the buyer’s agent. The new rules, however, disrupt the informal practices that have long supported this payment structure.
As part of the settlement, NAR agreed to two significant rule changes:
MLS Restrictions: Agents’ compensation details can no longer be included in multiple listing services (MLS), the centralized databases where Realtors share information about homes for sale. While compensation can still be discussed through other means, it will no longer be visible in MLS listings.
Buyer Agreements: Agents must now sign a written agreement with prospective buyers before showing them properties. This agreement clarifies that buyers are responsible for paying their Realtors if the seller does not cover the cost.
View the “NAR Settlement Changes and What it Means For You”
Potential Scenarios for Buyer Agent Commissions
Scenario 1: Buyers with a Budget Under $300,000: These buyers often need assistance with closing costs and have limited funds. Their down payment is usually less than 3%. It’s unlikely they’ll want to pay thousands more to their agent. The seller will then need to decide whether to cover the buyer agent’s fee to avoid losing the sale. Most sellers in this situation might still opt to pay the fee, while those who don’t could see fewer or no showings. When we do offer to pay a buyer agent commission, we now offer only 2% (reduced from 2.5%).
Scenario 2: Buyers with a Budget Over $300,000: These buyers may have more discretionary funds and, depending on the loan type and down payment requirements, may agree to pay their agent’s commission.
Scenario 3: Buyers with a Budget Over $500,000: High-income buyers in this bracket are more likely to compensate their agents, especially if the property meets all their criteria. They may even offer a premium to their agent in a competitive bidding situation.
One item of notice in the new rules. No longer can an agent in my market of Alabama act in a dual agent capacity, representing both parties. The new rules prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.
The real estate industry is likely to experience a period of adjustment as these scenarios play out, but the process could be messy in the coming weeks and months.