By MARGARET NELSON

For decades, real estate agents across the country and here in Alaska have shared a 5% to 7% commission paid by the seller. That’s over now. Changes resulting from a court settlement go into effect today that could make buying a home more expensive for the buyer and selling it less expensive for the seller.

Starting today, sellers in Alaska will no longer “automatically” offer to pay the commissions for licensees (agents are called licensees in Alaska) who represent buyers. This change is happening across the United States as the National Association of Realtors (NAR) and Multiple Listing Services (MLS) have agreed to new rules to settle 2023 class action lawsuits that accused them of keeping commissions artificially high. The agents agreed to pay $418 million over the next four years to homebuyers participating in our local Alaska MLS and change some of their practices. All denied any wrongdoing.

­­­­­­­­­­­­­­­­­New real estate rules

• Buyers and sellers negotiate commissions
• Buyers can pay their license fee
• Sellers cannot list commissions for buyer licensees in MLS
• Buyers must sign a representation agreement outlining fees and services

Before the litigation, it was common practice for a home seller in Alaska to pay between 5 and 7 percent commission on the sale, which was then split between the seller’s licensee and the buyer’s licensee.

Under the new rules, sellers no longer have to pay the buyer’s licensee at all, can agree to do so, or can pay only a portion. It’s all negotiable. Buyers then have to pay the buyer’s licensee’s commission, which is not covered by the seller. Both buyers and sellers are free to negotiate these fees with their licensees. While commissions have always been negotiable, this rule brings more clarity to the process.

Buying or selling a home is already confusing for most, and the process is getting more complicated every year. I expect this will have the biggest impact on buyers who already have to come up with a down payment and closing costs. Add in a commission and home buyers will have difficulty raising the funds. This situation is further exacerbated by the fact that mortgage loan rules do not allow commissions in the loan’s closing costs.

Thousands of dollars are at stake, so it’s more important for buyers and sellers to understand the role commission plays in buying or selling a home.

In Anchorage, the median sales price of a home in 2024 is $366,600, according to Alaska MLS. Based on a 5% commission, that equates to $18,330 historically split between the buyer’s licensee and the seller’s licensee.

Now the seller may pay less, but the buyer, who in the past has typically not borne any of the costs, would pay more, in this case up to $9,000 more.

What this means for buyers

As part of the settlement, buyers must sign a written agreement with their licensee outlining commissions and/or fees. This agreement essentially states that licensees will not work for free and what the licensees want to be paid for the services they represent as a buyer. I

If your buyer’s agent is unsuccessful in getting the seller to pay all or part of the commission through negotiation, the licensee will expect the buyer to pay for the buyer’s agent’s services. The buyer and licensee agree on what services will be provided and at what rate of pay. Payment can be in the form of a commission, an hourly rate, or a fixed fee. Again, everything is negotiated.

What this means for sellers

Under the NAR settlement agreement, sellers are no longer required to compensate buyers’ licensees, and if they agree to do so, they do not have to disclose up front what they intend to pay buyers’ licensees. This commission cannot be published in MLS listings, according to the agreement.

The previous practice was allegedly “anti-competitive,” and consumer advocates argued that it forced sellers to pay the full commission. And they said buyers were not using their bargaining power, but were relying on the selling licensees to control that part of the transaction. Time will tell how this plays out.

In the short term, not much will change as the industry learns to navigate the new rules. However, I expect it will become more expensive to buy a home and cheaper to sell one. Some argue that home prices will drop and others that this system means licensees will make less money on the transaction. I believe other factors such as the limited supply of homes and interest rates will be mitigating factors. Still, buyers and sellers need to know the nuances of all the fees they pay when buying and selling their homes.

My advice to all my clients – buyers and sellers – is the same as it always has been: make sure you interview real estate agents to determine if you can work with them successfully on a complex transaction. This purchase is the largest single transaction of most people’s lives, and having a full understanding of the service you will receive and the fees involved is extremely important.

Margaret Nelson is a real estate investor and broker/owner of Denali Real Estate based in Anchorage. She has over 30 years of experience in residential and commercial real estate and property management.