The real estate industry was set to implement new rules on Saturday that will shake up what agents get paid for the sale of a home — and by whom.
The changes stem from a settlement announced in March by the National Association of Realtors over how commissions are set.
Typically, a seller uses the proceeds of their sale to pay a commission of 5% to 6% to the listing agent, who will offer half of that to the buyer’s agents. (These fees, Realtors say, aren’t set in stone and have always been negotiable.)
But this spring, a federal judge ruled that the NAR had conspired to artificially inflate commissions by requiring seller’s agents to offer compensation to the buyer’s broker to list their homes on the NAR-affiliated multiple listing services, or MLS, their private databases of houses for sale.
As of Aug. 17, commissions are changing — and a buyer can’t take it for granted that the seller will take care of their agent’s fee. Here’s what you need to know:
How will this affect sellers?
Just as before, sellers will sign an agreement with their listing agent, setting their commission.
A listing agent may still offer the buyer’s agent a part of their fee — but they can’t advertise those compensation details on the MLS. They can advertise them elsewhere, for example on their brokerage’s website, over the phone or in person.
This is intended to prevent buyer’s agents from steering their clients exclusively toward houses where they would get a larger payout.
So does this mean that sellers don’t have to offer compensation to a buyer’s agent?
They don’t. But many Bay Area listing agents say they will still recommend it.
“Offering compensation to a buyer’s agent is just going to be another part of a seller’s marketing expense,” said Tammie Peters, a Los Gatos-based real estate agent and board member of the Silicon Valley Association of Realtors. “If there’s no compensation offered, there will most likely be less eyes on that seller’s house.”
The temperature of the housing market may also play a role in a seller’s decision over whether to offer compensation — in hot markets, where properties receive multiple offers, it may not make sense. But in slower markets, where sellers are having to lower prices, it may help to attract more buyers.
What changes for buyers?
In the previous system, with sellers covering commissions most of the time, buyers might have been forgiven for thinking that their agents came for free.
No longer.
Now, buyers will have to sign a written contract agreeing how much their broker will be paid before they can tour a property together. This agreement leaves buyers on the hook if the seller doesn’t offer any compensation to the buyer’s agent.
If a seller does agree to cover their cost, the buyer’s broker cannot be compensated any more than the amount specified in the buyer’s contract. Take, for example, a buyer who agrees to pay a 2.5% commission to their agent. If the listing agent offers a 3% commission, the buyer’s agent can still only take 2.5%.
The agreements will specify the type of work that an agent does on their client’s behalf.
“Agents will have to demonstrate their value,” said Tricia Thomas, CEO of the Bay East Association of Realtors. “Now the seller and the buyer have complete transparency into the transaction.”
What if a seller’s agent doesn’t offer commission to the buyer’s broker?
It’ll be on the buyer to come up with the money to pay their agent.
Bay Area agents worry that this could end up hurting first-time homebuyers, who may already struggle to come up with the cash for a 20% down payment on a home — let alone the money to pay for representation — especially amid climbing sales prices and low inventory.
If a buyer goes without representation, could that make a home cheaper?
Some buyers assume that if they come without representation, they should be able to knock the price down by the amount they would pay their agent, around 3%, because the fees would be lower.
Not necessarily. Some contracts negotiated between sellers and listing agents include provisions to pay a higher commission in case a buyer is without representation.
“The premise behind this is that there’s more work for the listing agent,” Peters said.
How could these changes transform the industry?
Real estate agents are waiting to see how these changes shake out over the next few months.
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Some Bay Area agents already have been offering flat fees or discounted rates to represent a buyer. Some new startups are promising that their AI models might replace agents entirely.
With the options before buyers, real estate agents may have to work harder to prove their value, said Barbara Clemons, a Pleasanton-based real estate agent and president of the Bay East Association of Realtors.
“It raises our value proposition,” Clemons said. “We’re looking forward to displaying that to our clients.”
