The Changing Landscape of Real Estate Commissions: What Homebuyers Need to Know

For years, homebuyers have enjoyed the benefit of not having to pay their real estate agents directly. Instead, sellers typically paid their agents a commission, which was then split with the buyer’s agent. However, this long-standing practice is set to change due to new rules announced by the National Association of Realtors (NAR). These changes could significantly impact how real estate transactions are conducted in the future. Here’s what you need to know.

The Seller’s Agent Has Historically Paid the Buyer’s Agent

Traditionally, the home seller pays their real estate agent a commission based on the sale price of the home. The seller’s agent then splits this commission with the buyer’s agent, often on a 50-50 basis. This split is typically listed on a multiple listing service (MLS), a database accessible to real estate agents. For example, if a home sells for $400,000 and the buyer’s agent receives a 3% cut, they would get $12,000 from the seller’s agent. However, the buyer’s agent may also have to share their portion with their brokerage.

While buyers don’t pay this fee directly, the cost is often passed on to them through higher listing prices. Critics argue that this system is unfair to sellers and may incentivize buyer’s agents to steer clients toward more expensive homes or those offering higher commissions.

Real Estate Listings and Commissions May Change Soon

On March 15, 2024, the NAR proposed significant rule changes to settle lawsuits over real estate commissions. These changes, set to take effect in mid-July 2024, include:

• Buyers’ commissions won’t be listed: Sellers’ agents will no longer be allowed to publish compensation offers for the buyer’s agent on the MLS.
• Buyers’ agents will require a contract: Buyers’ agents with MLS access will need a signed buyer representation agreement with the homebuyer. This agreement may require exclusivity for a specific period or home search and outline the agent’s compensation.

These changes could lead to a significant shift in who pays the buyer’s agent and how much they get paid, potentially affecting home sale prices.

What Might Happen in the Future?

Although the new rules don’t prohibit the seller’s agent from splitting their commission with the buyer’s agent, the commission split would have to be negotiated off the MLS. This could lead to a scenario where the seller and buyer each pay their respective agents. Here are some potential ways agent fees could be determined for homebuyers:

• Percentage of the sale price: Buyers might pay a percentage of the sale price or negotiate an arrangement that aligns their goal of paying a low price with the agent’s commission.
• Flat fee: Buyers pay a flat amount to an agent to help them with the entire process.
• A la carte fees: Buyers pay a fee to one or more agents to help with different parts of the process, such as seeing a home, preparing an offer, and receiving assistance with the closing process.
• Seller concessions: Although MLS won’t advertise the buyer’s agent commission, sellers can offer concessions on the MLS. Similar to how a seller might agree to pay certain closing costs as a concession, they might offer to cover some or all of the buyer’s agent’s fee.

The impact of these changes on the cost of buying a home is not entirely clear. Fee negotiations on both sides could lead to lower commissions and home prices. A February 2024 report from the Federal Reserve Bank of Richmond found that switching to a la carte pricing might save homebuyers over $30 billion per year. However, critics argue that buyers might need to come up with extra cash for their agent, making it more challenging for first-time, low-income, and underrepresented buyers to purchase a home.

Do You Need a Real Estate Agent to Buy a House?

While you don’t necessarily need a real estate agent to buy a home, most buyers still prefer to use one. According to the NAR’s 2023 Profile of Home Buyers and Sellers, about 89% of buyers used an agent. An agent can help you find a home, understand the process, and negotiate the price and offer. When choosing a real estate agent, consider their process, experience with the area and type of home you want, and their compensation.

Preparing to Buy a Home

Finding an agent is only part of the homebuying process. Regardless of whether you’ll pay the agent, you need to prepare for other upfront closing costs and the ongoing monthly cost of having a mortgage. Your credit history and scores could play an important role in your mortgage options and costs. Check your credit report and take steps to improve your credit before buying a home.

At O1ne Mortgage, we understand that navigating the homebuying process can be complex and challenging. Our team of experienced professionals is here to help you every step of the way. Whether you need assistance with finding the right mortgage or understanding the new real estate commission rules, we are here to provide you with the support and guidance you need. Call us today at 213-732-3074 for any mortgage service needs. Let us help you make your dream of homeownership a reality.