A new rule being implemented nationwide in the United States has changed the way real estate agents receive commissions. The rule states that sellers no longer need to provide any compensation to the buyer’s agent, leading to a significant shift in the process of buying and selling homes for Americans.
This new rule is part of a settlement agreement reached by the National Association of Realtors (NAR) in a collective lawsuit filed by 260,000 home sellers in the Midwest. Under this landmark settlement agreement, sellers will no longer be required to prepay the fees of the buyer’s agent, with buyers negotiating these fees directly with their own agents in the future.
Announced in March this year, the $4.18 billion settlement ends a practice in the real estate industry that has been in place for about 30 years, which mandated sellers to pay between 5% to 6% of the home purchase price as commission to the agents representing both parties.
Another rule change that has emerged as a result of this is that buyers now need to sign a written buyer’s agent representation agreement with their own agent before being shown any listed properties or being taken on house tours. This rule does not apply to properties with four units or more.
According to the new regulations, information on properties listed in widely used databases will no longer indicate whether sellers are willing to pay fees to the buyer’s agent, but agents and real estate companies can still inquire about commissions on their own websites.
The new rule will take effect on August 17th.
Although agreeing to modifications in the commission process, the National Association of Realtors emphasized in a statement that commission rates have always been negotiable, stating that NAR does not enforce commission rates and denying any misconduct in this regard by its members.
While most areas of the United States will begin implementing the new rule starting August 17th, some regions have already adopted these measures earlier this summer. Preliminary results indicate a decline in commissions.
According to data from real estate brokerage Redfin, in the four weeks leading up to July 14th, in a typical scenario, home sellers paid buyer agents around 2.55% of the home sale price, lower than the 2.62% paid in January.
The Chief Executive Officer of Redfin, Glenn Kelman, mentioned during this month’s earnings call, that agents are calling each other to inquire about how much sellers are willing to offer, and the usual response is that the amount is negotiable.
“We believe there will be some pressure on commissions,” he added.
If brokerages introduce new pricing models to reduce buyer costs or more buyers opt not to use a real estate agent, commissions could decrease even further.
Real estate agents shared concerns that these changes may lead some sellers to boldy offer lower compensations to buyer agents or no compensations at all. Some are worried that buyers might refuse to sign agreements with agents before touring homes and instead opt to purchase independently after the home tours.
However, in certain cases, agents and brokerage firms may push back. In a reported incident by The Wall Street Journal, an agent informed a seller that if they did not agree to pay a 6% commission, the brokerage firm would not list their house for sale or enter into any agreements with them.