Starting this weekend, if you’re looking to buy a home with the help of a real estate agent, you might have to pay their commission yourself. In the past, sellers would cover the buyer’s agent’s commission. However, new changes in the U.S. real estate industry are shaking things up. The National Association of Realtors (NAR) is leading these changes, which are set to take effect nationwide. These new rules could significantly impact homebuyers, especially first-timers.
Why the Change?
The shift comes after a massive $418 million settlement earlier this year. The NAR and major real estate companies like Keller Williams, Redfin, and RE/MAX agreed to pay up and change their policies following federal class-action lawsuits. These lawsuits claimed that homeowners were forced to pay inflated commissions when selling their homes.
The new rules primarily affect properties listed on multiple listing services (MLS) affiliated with the NAR. Two significant changes are at the heart of the overhaul:
- No More Blanket Offers of Compensation: Sellers will no longer automatically offer to pay the buyer’s agent’s commission in MLS listings.
- Required Buyer Representation Agreements: Homebuyers must sign a detailed agreement with their agent upfront, outlining the services provided and the commission to be paid.
What Does This Mean for Homebuyers?
Previously, homebuyers didn’t have to worry much about their agent’s commission as the seller typically covered it. Now, if a seller decides not to cover this cost, buyers will need to budget for this additional expense. As Bret Weinstein, CEO of Guide Real Estate in Denver, notes, “This will have a negative impact on a buyer’s ability to purchase a home, and so there are going to be quite a few large-scale changes in the buyer’s process.”
The New Normal: Signing Agreements Early
Under the new rules, if you’re serious about buying a home, you’ll need to sign a representation agreement with your agent before they start working for you. This agreement will lay out exactly what services the agent will provide and how much it will cost you.
Previously, similar agreements were only required in about 20 states. Now, they’ll be mandatory nationwide. This could be a tough adjustment for buyers who are used to having more flexibility. As Andrea Ratcliff, a Redfin agent in Indianapolis, shared, “The big change now is that we are required to ask the buyer to commit to us early and hire us early in the process.”
How Will This Affect the Market?
The effects of these changes could vary depending on local conditions. For example, in a slower market, where sellers are eager to make a sale, buyers might still be able to negotiate for the seller to cover their agent’s fees. But in a hot market, where homes are selling like crazy, sellers may hold the upper hand and refuse to cover these costs.
Despite the changes, some experts advise that sellers continue to offer to cover the buyer’s agent commission. Alex McEwen, an associate broker with Selling Utah, cautions, “The last thing you want to do when you are selling something is to make it complicated for someone to buy it or to limit the number of people who can buy it.”
What About Commission Rates?
It’s too soon to tell if these changes will lead to lower commission rates across the board. While buyer-agent commissions have dipped slightly this year, the overall cost to buyers could still rise if home prices continue to climb. Stephen Brobeck, a senior fellow at the Consumer Federation of America, believes that these changes might push more sellers to negotiate lower commission rates with their agents.
Final Thoughts: Read the Fine Print
For buyers, the takeaway is clear: Be prepared. As these new rules take effect, you’ll need to understand what you’re signing and plan for how the commissions section of the contract may impact your budget.
