If buying or selling a house has been on your mind, it’s possible you’ve seen the NAR (National Association Of REALTORS) Lawsuit in the news. Google ‘NAR Settlement’ and there will be no shortage of links for further review. In a nutshell the lawsuit came about due to lack of transparency in how real estate agents are paid. We can’t blame consumers for being confused IF they have been working with realtors who fail to explain the process and costs associated, or if they’ve just never bought a home. There is NO standard or set commission – they have always been and will continue to be negotiable. While there have never been any standard commission rates or structures, there have been practices common throughout the marketplace on listed properties. Generally, when a seller lists a home for sale with a listing broker, they agree to pay a total commission to that listing broker at closing upon the successful sale. Of that total commission, oftentimes the listing broker would offer to share a portion of that commission with a buyer’s agent representing the buyer who made the purchase. These terms are agreed to in a listing contract. So, as a home buyer, oftentimes you have not come out of pocket directly to pay your realtor, but rather your realtor is getting compensated from a portion of the listing agent’s previously agreed upon compensation from the Seller.
What’s in question here were three things: One, the lack of transparency to a buyer on what specifically the buyer’s agent gets paid. Two, the fact that a buyer’s agent could steer their buyers to only look at homes offering higher commissions. And third, that the seller didn’t have an option as to whether a cooperating commission was offered.
Effective August 2024 the real estate industry made changes which affect Buyers & Sellers in several ways. Here is a breakdown:
Offers of cooperating commission are no longer allowed to be communicated through the MLS. Cooperating commissions can still be offered and paid by the listing agent, a buyer’s agent can be compensated by a seller as part of a deal, or a buyer can compensate their agent directly. (The ONLY thing changed here is the fact that co-op commissions will no longer be displayed on MLS. Everything else was already an option previously.)
A buyer wishing to ‘work with’ a buyer’s agent must have a signed Buyer Representation Agreement prior to viewing ANY homes. This is a good change. It’s going to force the conversation up front of what services a buyer’s agent provides and how they are compensated. It’s going to require both parties to agree to the compensation up front.
WHAT DOES THIS MEAN FOR BUYERS?
You will sign a written agreement with your agent before touring a home.
Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided and what the cost will be for representing you.
The buyer agreement must include four components concerning compensation: A. Specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined. B. Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate)—and not open- ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”). C. A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and, D. A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
Written agreements apply to both in-person and live virtual home tours.
You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.
The seller may agree to offer compensation to your agent. This practice is permitted but the offer cannot be shared on a Multiple Listing Service (MLS)— MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
You can still accept concessions from the seller, such as offers to pay your closing costs.
Positives: Buyers will have a clear understanding of how their agent is compensated and the various ways an agent can be paid. Buyers will likely do their homework to find a professional agent whom they trust to consult & guide them through the home buying process. A valuable buyer’s agent advises and advocates for their Buyer. Our tip for buyers in this changing market is to have a consultation with an agent you are considering working with. The agent should show you their value and explain exactly what it is they will be doing for you.
Negatives: You may be in the situation where some properties are not offering a co-op commission requiring that you pay your realtor directly as opposed to it being part of the overall price of the home. You will not know immediately if a listing is offering a co-op commission now that it is no longer communicated on MLS. Your buyer’s agent will have to contact each listing you are interested in seeing, find out if there is an offer for co-op commission, and then discuss with you whether or not the co-op commission equals the buyer’s agent fee or if there is any shortfall or excess. Even if a co-op commission is not offered on a listing, you can still attempt to negotiate it as part of your offer.