Rules for real estate commissions are changing
This weekend, new real estate regulations come into force that will fundamentally change how real estate agents are paid.
Fox – 10 Phoenix
New rules for the residential property market mean that from Saturday anyone looking to buy or sell a home will encounter unfamiliar procedures and possibly a little confusion.
The “practice changes” stem from a 2023 court decision concerning the remuneration of real estate agents.
Traditionally, when a home was sold, the seller paid a commission of about 5 to 6 percent, which was split between the buyer’s and seller’s agents. This structure helped keep commissions higher than they would have otherwise been, the lawsuit says. It also meant that the seller had to pay the other side’s agent, a practice that many observers found inappropriate.
“A lot of the industry doesn’t make common sense,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America who has advocated for decades to change real estate agent commissions. “The main argument has been that it’s just not fair for sellers to pay both the seller’s agent and the buyer’s agent.”
Now a seller must decide whether and how much to pay the buyer’s agent. Whatever the decision, this information can no longer be included in the so-called “Multiple Listing Service” (MLS), the official real estate data service used by local associations of realtors.
However, the seller’s decision regarding compensation may be communicated in person, by phone or text message, or announced through social media, a sign on the lawn, or other informal means.
Buyers, meanwhile, must sign a contract with their own agent before they begin viewing homes. The buyer and agent must agree in writing on how much the agent can expect from the buyer.
What that means, exactly, is a bit of wiggle room. A recent statement from the National Association of Realtors said the rules must be “objective (e.g., $0, X flat fee, X percent, X hourly rate) — and not unlimited (e.g., cannot say, ‘The buyer’s agent’s compensation is equal to the amount the seller offers the buyer.'”).
“Any time we have an opportunity to talk to the consumer about the value we bring to the transaction, the services we can provide them in what is probably one of the largest financial transactions of their lives, and the fact that we expect payment for that that is completely negotiable, that’s a good thing,” said Kevin Sears, president of the National Association of Realtors.
The group is a powerful lobby organization in Washington that has more than 1.5 million real estate agents as members – about 85 percent of all real estate agents in the country.
“The more educated and empowered the consumer is, the more conversations we have with them, the better it will be for everyone,” Sears said.
Many elements of the new practices are familiar to many real estate agents, buyers and sellers. Many states have long required buyers to sign a brokerage agreement before beginning the process. The rise of alternative brokerage models like Redfin means many homeowners are aware they have options beyond the typical method of paying 3% to an agent and 3% to a buyer’s agent.
But the question of what the changes will mean in practice is puzzling realtors across the country. What happens if a buyer has the money to compensate their agent up to a certain amount, but falls in love with a house that would cost more than the commission would pay? And conversely, what happens if it turns out that the seller of a particular house is also willing to compensate the buyer’s agent?
Many real estate agents say a process that was supposed to provide transparency only creates more confusion.
“Today, a buyer’s agent must review every single offer they want to show to determine the amount of commission,” said Aaron Farmer, owner of Texas Discount Realty in Austin.
In Austin, where a booming market took a sharp turn due to the pandemic and unsold inventory piled up, Farmer thinks it’s only natural that sellers would want to compensate buyers’ agents to sweeten the deal. But that may not be the case everywhere, and Farmer also worries that egos could get in the way of smart business decisions in some transactions.
Andi DeFelice, owner of Exclusive Buyer’s Realty based in Savannah, Georgia, believes first-time buyers have the most to lose from the rule changes. Many who are already strapped for cash may also have trouble coming up with the money for the commission and will have to negotiate themselves, she believes.
“Don’t force our clients into a situation where they don’t have representation in the biggest transaction of their lives,” DeFelice said. “If you’ve never done this before, it’s not easy. There are so many steps involved in buying a home. Do you know a good termite inspector, a good insurance agent, a good lender? There are so many aspects to the transaction.”
DeFelice is confident the industry will overcome what she calls the Saturday deadline “hiccup” and adapt relatively quickly, but others expect bigger changes.
“For consumers, not much is going to change in the near future,” Brobeck told USA TODAY. “But it’s like a dam that’s leaking. I’m pretty confident that the industry will look very different in five years.”
Farmer of Texas Discount Realty agreed.
“I’ve seen a lot of people say, ‘I’m going to get out of the industry, I don’t want to deal with the changes,'” he said. “I’ve always looked at it this way: Fewer agents helps the industry. That way you can lower commission rates and get more revenue.”
Andrea Riquier reports on the real estate market.
