New Real Estate Commission Rules: What Homebuyers Need to Know

If you're in the market for a new home, you’re likely aware that the real estate landscape is changing. One of the most significant shifts involves how real estate agent commissions are handled, which directly impacts you as a buyer. Understanding these changes is crucial to making informed decisions throughout the buying process. Here’s what you need to know.

The Traditional Commission Structure

Historically, when you buy a home, the seller covers the commission for both their own agent (the listing agent) and your agent (the buyer’s agent). This commission is usually around 5-6% of the home's sale price and is split between the two agents. However, recent legal actions and industry changes are shaking up this model.

Key Changes That Affect You

1.No More Advertised Buyer’s Agent Commissions

A recent lawsuit against the National Association of Realtors (NAR) has led to a big change: starting August 17, 2024, listing agents can no longer advertise the commission they will pay to your agent. This means you’ll need to be more proactive in understanding and negotiating your agent’s commission.

2.New Requirement: Buyer Agency Agreements

Another important change is that you’ll now be required to sign a buyer agency agreement before a Realtor can represent you and show you properties. This agreement will outline what services your Realtor will provide, how much they will be paid, and who will be responsible for covering their commission. This agreement must be signed before you start viewing homes, adding an extra step in the buying process.

3. Who Pays the Commission?

Traditionally, the seller paid the buyer’s agent’s commission, but this practice is being reconsidered. With the new rules, there’s a possibility that you might have to pay your agent’s commission directly, especially if the seller opts not to cover it. This means you need to be prepared for additional costs that weren’t previously part of the equation.

4. Transparency in Commission Rates

The good news is that the new rules are designed to make commission rates more transparent. You’ll know upfront what your agent is being paid and can negotiate their fees if needed. This transparency can help you avoid surprises and ensure that you’re getting value for your money.

5. Impact of the NAR Settlement

The changes stem from a series of class-action lawsuits where homeowners accused NAR of fixing broker commissions at high rates. Although NAR denied any wrongdoing, they agreed to settle the lawsuits for $418 million, to be paid over four years, and to implement these new commission rules. This settlement also includes changes to how commissions are displayed on Multiple Listing Services (MLS), which are the databases where homes for sale are listed.

How These Changes Impact Your Homebuying Process

As a buyer, these changes mean you’ll need to be more involved in understanding and negotiating your agent’s commission. Here’s what you should keep in mind:

- Budgeting: Be prepared to possibly cover your agent’s commission yourself. If the seller does not offer to pay, you’ll need to account for this cost in your overall home-buying budget.

- Negotiating: Since commission rates will be more transparent, you’ll have the opportunity to negotiate with your agent. Make sure you understand what services they’re providing and whether their fees align with your expectations.

- Understanding the Buyer Agency Agreement: This agreement is now a crucial part of the process. Take the time to read it carefully, understand the terms, and discuss any concerns with your agent before signing. This document will set the foundation for your working relationship with your Realtor.

Final Thoughts: What Should You Do Next?

As you prepare to buy a home, it’s essential to stay informed about these new rules and how they might affect your financial planning. Have an open conversation with your Realtor about their commission, the services they’ll provide, and how the new rules will impact your transaction. The more informed you are, the better equipped you’ll be to navigate these changes and make the best decisions for your home purchase.

While the process of buying a home is evolving, these changes are aimed at creating a more transparent and competitive market. By understanding how these new rules impact you as a buyer, you can approach your home search with confidence and clarity.

For more information on how the new real estate commission rules impact sellers, read What Sellers Need to Know About the New Real Estate Commission Rules.