Important changes to the way real estate agents are paid went into effect Aug. 17, but will buyers and sellers be affected significantly?
In the past, the seller of a property has generally paid the entire commission, which is typically a percentage of the property's sale price. The commission is then split between the seller's agent and the buyer's agent. The standard rate has been between 5%-7% of the home's sale price. Some claim that these commissions inflate home prices.
Several lawsuits were filed alleging that the commission system violated anti-trust rules. The National Association of Realtors settled the suits, agreeing to pay $418 million and to change its commission rules.
Probably the most noticeable change in the new rules is that technically buyers will now pay their own agent, rather than the seller paying the buyer's agent. However, since buyers can stipulate the terms of the sale in the offer they make to sellers, the net effect may not change,
Julie Davis, head of the Julie Davis Team at The Real Estate Group, said, "The changes in how Realtors do business are really changes in process and procedure, giving buyers more clarity and transparency. That's a good thing for consumers, especially those buying their first home."
Proponents of the new rules emphasize the ability of the consumer to negotiate commissions now. However, Davis notes, "Commissions have always been negotiable. Individual companies and agents set their own policies, based on their cost to deliver the level of service they choose to provide."
The major practical difference in the buying process will be the paperwork. Davis said, "The largest paradigm shift for consumers is that they must sign some type of agreement outlining their relationship to the Realtor prior to viewing a home. Realtors all across the country are prohibited from showing a house without a signed agreement."
So how will the process work going forward?
Commissions will not automatically be split between seller and buyer agents. A seller can still pay a buyer's agent, but the seller can no longer include that information on the multiple listing service. Before, a listing on MLS could state that the commission was 6% to be split between the agents. Now, the commission can still be 3% paid to the seller's agent and 3% paid to the buyer's agent, but the paperwork will be different.
The intent in not allowing the commission information to be posted in MLS is to avoid steering, where a buyer's agent would not show a client homes solely because the seller was offering below-market commission rates.
In time, buyers may pay their own agents and sellers may pay lower commissions to their agents, but at least in the near future, sellers will likely continue to pay the entire commission.
Proponents believe the new rules will lower overall costs, increase competition among real estate agents, and make home ownership more accessible for many individuals and families.
The lawsuit settlement also has implications for anyone who sold a home in the last seven years, who may be able eligible for payment. Per realesatecommissionlitigation.com: "To be eligible to receive the benefits of the Settlements, you must have: (1) sold a home during the Eligible Date Range; (2) listed the home that was sold on a multiple listing service ("MLS") anywhere in the United States; and (3) paid a commission to any real estate brokerage in connection with the sale of the home. The Eligible Date Range depends on which MLS you listed your home for sale on." You can obtain more information and file your claim on the website. The amount sellers receive will depend on the number of claims filed.
As with any business, the sale of real estate will evolve over time, and we will have to wait to see how the new rules play out.
This article is for informational and educational purposes only and does not constitute legal advice.