How the new rules for real estate commissions could affect you
In March of 2024, the National Association of Realtors® (NAR) agreed to a settlement in a landmark federal antitrust case that changes the way that real estate agents are paid. As part of that settlement, NAR agreed to eliminate certain rules that had been in place for years.
Real estate market experts have called these changes the biggest shakeup to the industry in over a century. The previous rules for agent commissions had been in place for generations and had become a standard part of the homebuying process. But with the real estate commission changes that went into effect on August 17th, 2024, the hope is that homebuyers and sellers will experience more transparency through the home sale.
Let’s take a look at how removing certain longstanding guidelines will likely change how you buy a home. Continue reading to learn more about the changes to real estate commission rules or start the process by applying today.
What are the new rules for real estate commissions?
One impact of the NAR settlement is that the agents’ compensation will no longer be advertised on the home listing in the local multiple listing services (MLS). An MLS is an online portal that shows all the homes that are for sale in your local market.
Advertising the agent’s compensation made it possible for real estate agents who were representing a buyer to know about how much money they would make once the home sold to his or her clients.
The other major impact of the settlement is that written buyer agreements are now required. This is a practice that many agents already did, but now it’s part of the rules.
How will real estate agents receive commissions now that these changes are being put in place? The result of all of these changes is the way agents are going to be compensated in new ways that are yet to be fully defined. In the past, the buyer’s and seller’s agent would typically split a 5-6% commission on the sale of the home, but updates are likely coming soon.
How have real estate commissions worked?
Real estate commissions are a standard part of any home sale transaction. They are how the real estate agents who help the buyer and the seller get paid. Commissions have been calculated as a percentage of the home’s sale price. The total commission is generally split between the buyer’s agent and the seller’s agent.
The long-standing tradition held that the commission would be in range of 6% of the sale price. That was one of the main issues of the original lawsuits against NAR. NAR said that those fees had always been negotiable, but not many people were aware of that.
Who pays real estate commissions?
Before the NAR settlement, the seller was responsible for paying the agents. This happened at the tail end of the closing process, just before the keys were exchanged. When the home was sold, the commission generally came from the proceeds of the sale. The seller would then pass along the full commission to the seller’s agent typically, who would split it with the buyer’s agent.
Since the changes in real estate commissions are being put in place, the updates are designed to increase transparency. The expectation is that the new rules for buying and selling homes will provide more options when it comes to how commissions are negotiated and paid and how closing costs are handled.
When did the new real estate commission rules take effect?
The new rules surrounding real estate commissions took effect on August 17, 2024. However, keep in mind that the new rules mainly change what had been standard operating procedure for agents’ commissions. They don’t set forth new guidelines. That means that these changes may vary by state, so it's crucial to stay informed about the regulations in your area and work with a local lender.
It also means that we may see new ways of compensating real estate agents, particularly those representing the buyer. There may be a period of experimentation where a few formats are tried out. In a few years, there could be a new standard operating procedure, but for now it seems like there could be many approaches.
How will this impact my closing costs?
With the new rules, you may see changes in your closing costs. Depending on how commissions are negotiated, the buyer might be responsible for paying a portion of the real estate agent’s fees directly, or sellers might adjust their asking price to cover these costs.
Real estate commissions could fall between 25% to 50%, according to a March analysis by TD Cowen Insights.
Understanding these changes is key to ensuring that you’re prepared for any additional expenses at closing, which you can do with the help of our closing costs calculator.
How can I find a mortgage lender?
Under these new practice changes, finding the right mortgage lender is more important than ever. The mortgage process has always been complicated, which is why working with an experienced lender is so necessary.
It’s also a good idea to get pre-approved for a loan, which can give you a better idea of what you can afford and strengthen your offer when you're ready to buy.
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