As many people have probably heard, there was a big lawsuit against the NAR, or the National Association of Realtors recently, that is going to affect how commissions are paid to realtors. The last change for agents was back in the early 1990s! Wendy and I thought it might be good to make a video explaining just what these changes are, how they will affect Realtor commissions, and also, how it will affect sellers and buyers.
Traditionally, the seller has negotiated with the listing agent, how much commission will be paid out, both to the listing agent and the buyer’s agent. The seller pays the full commission to both realtors, and the buyer pays no commission. Because of the lawsuit, the NAR is setting up new rules as to how commissions are paid. Here is how it will work.
Beginning August 17, 2024, when the seller signs a listing agreement, he will negotiate with the listing agent how much he will pay the listing agent, but instead of agreeing to pay a buyers agent, the seller will decide what amount of money he is willing to contribute to the buyer directly, as a concession, so that the buyer can use that money to pay the buyer’s agent. This amount will be listed in the MLS under concessions, instead of under amount paid to Buyer’s agent. How is this change going to help buyer’s and sellers?
The lawsuit accuses some real estate firms of price fixing, because each listing lists how much a buyer’s agent will be paid at closing. This can cause some realtors to steer their buyers away from houses that pay less commission, and towards houses that pay a higher commission. This was really wrong! We have always thought that realtors got paid way too much commission, and that is why we started our company back in 2006. We have been doing 1.5% commissions, which is way less than most realtors have been charging, have been willing to be flexible on what our commission is, as well as what the seller pays the buyer’s agent, and even on what our commission is as a buyer’s agent.
The lawsuit needed to happen, because many realtors have been greedy in the past and it had to change.
Here are 3 changes that will happen August 17, 2024
- Decoupling of commission: Meaning the seller only pays the listing agent
- Seller fee does not include the buyer’s agent fee,
- The buyer pays his own agent’s fee
How does the buyer’s agent get paid?
The first thing you need to know, on the first meeting with a buyer’s agent to schedule a showing of a property, the buyer must sign a Buyer Agent Agreement. This specifies how much a buyer will pay the buyer’s agent, what the time period is, and what the agent’s responsibilities are. Each of these things is negotiable. You will want an agent that is an expert negotiator who understands every aspect of this new law. If they don’t, it could end up leaving money on the table that could be in your pocket. We have more details on the buyers agreement on our website, and we also made a video for buyers specifically.
Does that mean a seller pays no buyer commission?
So a seller may think, wow I don’t have to pay any buyers fees! And that is true. You don’t have to pay the buyers agent anything. However, there are a few things that you might want to take into consideration that could greatly affect your ability to sell your house quickly and for the highest price. We really don’t know how it will all play out, but we need to understand what is customary in your area, so that you are competing on a level playing field. Here are some things to think about.
Because it will be difficult for many buyers to pay their agent a commission out of pocket in cash, being as prices are so high, downpayments are high, interest rates are high, closing costs are high…how will they be able to come up with another 2% or more to pay their agent? So many sellers agents may encourage their sellers to offer a seller paid concession to help cover the cost of a buyer’s agent. This will be listed in the MLS, under seller concession instead of buyers agent commission. If the seller pays more than the buyer has agreed to pay his agent, the buyer keeps the extra. This will keep agents from steering their buyers to buy a house with a higher commission. You can see a chart showing how this will work, on our website.
The amount that seller agrees to contribute to buyer, will affect offers. If a seller doesn’t offer any concession, and a buyer doesn’t have enough for closing costs etc, and then has to add an agent commission, they won’t be able to make an offer on your house. So it could reduce the offers. If you do offer a concession, it could help you get more offers, plus the buyer might offer a higher price because he knows he is not paying the buyer commission, so when he adds up all he is paying, he can pay more. It probably all equals out in the end. But offering a seller concession, that could attract more buyers and more offers, which benefits the seller and would potentially give the seller more money overall.
How does it work with buyers and their agents
So now, how does all this affect buyers? Do they still need to use a realtor to represent them? If so, who pays the Buyer’s Agent commission? Are there options?
These are all important questions. Things are changing so much right now, and if you have been buying or selling real estate in the past, it is going to seem pretty confusing at first. It really isn’t, in fact it makes a lot more sense than the way things have been done in the past! It is just a new way of doing things. It is extremely important that you, as a buyer, understand how you will be affected by all this. There are many things to think about before you make any decisions, so I will try to lay it out in a way that makes sense. You can always contact us with questions, because you will probably have quite a few!
First of all, if you want to look at a house, and you want a Realtor to show it to you, the first thing you have to do is sign a Buyer Agent Agreement with the realtor of your choice. They cannot show you a house unless you do this. It is a requirement. This agreement will include several things.
- How much you will pay the realtor
- How long the agreement lasts
- What services the realtor will be responsible for
So the first thing, how much you will pay the buyers agent, can really be anything that both you and your agent agree on. Some agents will be more flexible than others, so check around. I know that our company has always been willing to be flexible in matters of commission, but some agents won’t. Here are some examples of options you may want to try:
- Maybe you just want an agent to show you one house because you don’t really know her very well, and aren’t sure you want to sign a long term contact with her. You might agree to pay her $150 to show you that one house. If you really like the house she showed you, and want to write an offer, you might have a clause in the contract stating how much you will pay her if she gets you an accepted offer and you close on the house.
- Or, to test an agent out before you commit to her, you can agree to pay her by the hour, for example $50 per hour, for the time she spends with you. This might be a good way to start if you don’t know the realtor, and aren’t sure whether you want to work with her long term.
- If you don’t find a house right away, but things went well, and you feel the realtor is knowledgeable, trustworthy, fits with your personality and style, and you enjoy working with her, you can revise the buyer contract, and continue working with her for a stipulated time period, agreeing to pay her a certain commission once you find a house and close on it. It is all negotiable!
One thing to keep in mind, though, is that if you find a good agent, and are serious about buying a house, it is probably a good idea to sign a longer buyer contract with her, having her commit to help you and put your needs and interests first, before other buyers or things she has to do. If you sign a buyer agent agreement that lasts for one to three months, and agree to pay her a fair commission once you get an accepted offer and close on a house, she will be more willing to give you her best, drop everything to show you a house that comes up that you want to see asap, and spend the time with you that you will need!
How does a good buyers agent help you?
- A listing agent is representing the seller only. She will do her best to get the seller the highest price, best terms and least repairs. Many listings agents are hard negotiators, and they will fight for their sellers against you, to get their sellers the best terms. This is what you want when you hire a buyers agent, but you don’t want to have to go against this type of listing agent by yourself! You want someone fighting for you!
- Your realtor can send you comparables, so you can see how much similar houses in the area have sold for, or are pending for. This helps you know how much to offer. Sometimes sellers price their homes too high, and you want to make sure you don’t offer too much. But other times sellers price their homes too low, and will end up with multiple buyers competing for the house. Knowing the actual value is so important when deciding how much to offer, and getting your offer accepted without offering too much.
- If there are multiple offers, your realtor can check with the listing agent to see how many offers there are, approximately what they entail, when they are reviewing offers, and what types of things are important to the seller. If there are multiple offers, there are many things that come into play for the seller, including giving the seller free rent back, putting a cap on what repairs you will ask for, adding an appraisal gap clause, etc etc. If there isn’t any other interest in the house, she can find that out for you too.
- In this new arena of commission change, your realtor can also help you navigate seller contributions to closing costs and agent commissions, which will now be called seller concessions. The seller may be willing to pay some or all of your agent commission through seller paid concessions. When the seller signs a listing agreement, he also puts in writing how much he is willing to pay a buyer for concessions. Then you, as the buyer, pay your realtor whatever you agreed to pay in your contract.
- If the seller has not agreed to pay a concession to the buyer, your agent can help you negotiate with the seller so that they are willing to contribute or pay for your buyers agent commission. This negotiation takes skill, and can save you thousands of dollars! You want to make sure you find a buyer’s agent who has lots of experience, a good understanding of all these new changes, and who excels at negotiation, in both the offer, repair issues, and helping you get the concessions you need so you won’t have to come up with as much cash to close!
How does a good buyer’s agent help you?
- A listing agent is representing the seller only. She will do her best to get the seller the highest price, best terms and least repairs. Many listings agents are hard negotiators, and they will fight for their sellers against you, to get their sellers the best terms. This is what you want when you hire a buyers agent, but you don’t want to have to go against this type of listing agent by yourself! You want someone fighting for you!
- Your realtor can send you comparables, so you can see how much similar houses in the area have sold for, or are pending for. This helps you know how much to offer. Sometimes sellers price their homes too high, and you want to make sure you don’t offer too much. But other times sellers price their homes too low, and will end up with multiple buyers competing for the house. Knowing the actual value is so important when deciding how much to offer, and getting your offer accepted without offering too much.
- If there are multiple offers, your realtor can check with the listing agent to see how many offers there are, approximately what they entail, when they are reviewing offers, and what types of things are important to the seller. If there are multiple offers, there are many things that come into play for the seller, including giving the seller free rent back, putting a cap on what repairs you will ask for, adding an appraisal gap clause, etc etc. If there isn’t any other interest in the house, she can find that out for you too.
- In this new arena of commission change, your realtor can also help you navigate seller contributions to closing costs and agent commissions, which will now be called seller concessions. The seller may be willing to pay some or all of your agent commission through seller paid concessions. When the seller signs a listing agreement, he also puts in writing how much he is willing to pay a buyer for concessions. Then you, as the buyer, pay your realtor whatever you agreed to pay in your contract.
- If the seller has not agreed to pay a concession to the buyer, your agent can help you negotiate with the seller so that they are willing to contribute or pay for your buyers agent commission. This negotiation takes skill, and can save you thousands of dollars! You want to make sure you find a buyer’s agent who has lots of experience, a good understanding of all these new changes, and who excels at negotiation, in both the offer, repair issues, and helping you get the concessions you need so you won’t have to come up with as much cash to close!
