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A series of new real estate regulations designed to create a more transparent and buyer-friendly market have been officially in force nationwide since August 17.
These regulations have been in effect in New Jersey since the beginning of the month after Governor Phil Murphy signed the Real Estate Consumer Protection Enhancement Act in July.
These policies were implemented as part of a settlement with the National Association of Realtors after the group was accused in lawsuits of conspiring to keep realtor commissions excessively high, especially for sellers. These new rules include things like mandatory buyer representation agreements, required seller disclosure forms of property condition, designated agencies, and more.
And now there appears to be a particular group of transactions that could benefit most from these new policies: private sales.
“There are usually no real estate agents involved in these transactions. That’s because the seller and buyer may know each other, perhaps through family members or other reasons of that nature,” says Frank Ferruggia Jr., a real estate attorney in Hackensack. “Another reason is that the seller may just want to save the commission.”
Previously, home sellers had to pay commission costs for both the agent and buyer’s agent involved in the transaction, which was typically 6% of the home’s sales price. So, in a transaction where the home was sold privately, the seller would still have to pay a 2% to 3% commission to the buyer’s agent, or no commission at all if neither party used an agent.
However, under the new rules, sellers will no longer have to pay the commission to the buyer’s agents. Instead, buyers will now have to sign a mandatory buyer representation agreement that sets out the terms of their agent’s compensation.
Yehuda Kohn, founder and CEO of SaveOnYourHome.com – a platform that helps homeowners sell their properties – said the new commission rules would create a discrepancy because in a typical real estate transaction, the commission a seller agrees to with their agent may not match the commission a buyer agrees to with their agent.
“Let’s say you sell your house the traditional way with an agent and you agree that the seller’s agent will receive a 3% commission and only offer the buyer’s agent 1%. But then the buyer’s agent shows up and has agreed with his client that he will receive a 2.5% commission,” he said. “Now there is an imbalance.”
By listing a home as a private sale, you can avoid this discrepancy. Since the seller is not working with an agent, only an agent’s commission needs to be considered, or there may be no commission at all if the buyer is not working with an agent.
As a result, Kohn said, sellers who list their home this way may be more willing to negotiate and pay the buyer’s agent’s commission, since it would still be lower than if they went the traditional route. And even if they don’t, they don’t necessarily have to pay a commission anyway.
“If I sell my house for a million dollars and find a buyer who will buy it on his own for a million dollars, that’s great. I sell it and pay no commission,” Kohn said. “But if I sell it for a million dollars and the best offer I can get is $900,000 and an agent brings me a client who wants to pay a million dollars but wants me to pay the 2.5% commission, that’s a no-brainer.”
Buyer representation agreements are also now required before an agent can allow potential buyers to view a home privately. Kohn said this is another benefit for private sales – and buyers too – because a seller doesn’t have to turn away potential buyers from viewing the property if they don’t have these documents.
Can we expect more offers from private sellers?
Ferruggia said he does not believe these regulations would have a major impact on real estate transactions overall, either private sales or typical broker-involved transactions.
“I think the only thing that will change is transparency. I think brokers will now have to be more transparent about fees up front, so I don’t think it will lead to more transactions of private sales,” he said. “But I haven’t seen that in practice yet, so it’s all speculation.”
However, Kohn said he believes we can expect to see an increase in private sale listings. This is because working with an agent was once seen as easier than selling your home yourself, but these changing factors could change that.
“It used to be that if you wanted to buy or sell a house, it didn’t hurt to go through a real estate agent. It was a piece of cake,” he said. “But today I’m more against having to commit to a real estate agent from the start and pay him a certain fee.”
Maddie McGay is the real estate reporter for NorthJersey.com and The Record, covering all things North Jersey living. You can find her on Instagram @maddiemcgay, To X @maddiemcgayyand sign up for their Living in North Jersey Newsletter. Do you have a tip, trend or great house she should know about? Email her at MMcGay@gannett.
