2 Key Changes in Real Estate Commission and Buyer Rules

Two key Realtor commission changes

While the settlement’s ripple effect has created a wave of collateral changes within the real estate industry, the NAR agreed to two key rule changes: how commissions are promoted and shared and how they are negotiated and paid.

1. Offers of compensation no longer allowed on Multiple Listing Services

Historically, agents could access a centralized database called the Multiple Listing Service (MLS) to see exactly how much compensation or commission they could make if they bring a successful buyer to the closing table. Listing agents would typically enter an offer (percent sale or other amount) into the system based on what they negotiated with their seller clients.

Under the new rules, such compensation details are prohibited on the MLS. This is one way the NAR agreed to take steps to decouple buyer and seller commissions that were previously mandated by the association. It also addresses one layer of the original lawsuit that alleged many buyer’s agents were only searching for homes that would make them the most money, a practice critics called “steering.”

Commission and compensation offers can still be shared from agent to agent through discussions, phone calls, emails, or advertising outside of the MLS. As the Aug. 17 change date approached, numerous off-MLS online portals and private social media groups were created where agents post compensation details about the properties they are listing.

2. Written buyer agreements are needed before touring a property

If you are working with a buyer’s agent, you must now enter into a written agreement before touring a property together. This will be a legally binding contract that outlines exactly how much the agent will get paid for the transaction.

This formal, upfront agreement represents a major goal of the settlement. It is designed to inform buyers that they are responsible for paying their own agents if a seller chooses not to cover the cost of the commission. In short, this change puts the agent fee dealmaking into the buyers’ hands.

While a written agreement before you shop may seem like a jarring adjustment for buyers, it was already a requirement in 18 states. In states where they were not required in advance, buyer-broker employment agreements have been a common practice for decades. The difference is that they were not a prerequisite before a showing or tour.

The new rule does not dictate the terms of buyer agreements.

Written buyer agreements can be flexible

Most agents want a long client relationship commitment (60-90 days or more), but term lengths on buyer agreements are negotiable — and always have been.

It’s important to remember that agents dedicate a lot of time and effort to helping their clients. Under the new real estate commission rules and regulations, they will want to make certain the work they do will be compensated fairly. But agents also know that they need to earn your trust and business, so they’re offering flexible ways to comply with the new mandates.

Legally speaking, there is no minimum length of time required for a written buyer agreement with an agent. So a hesitant or less committed home shopper and their agent can negotiate any length of time they determine is mutually acceptable.

Another option many buyer’s agents are offering is a separate property-showing or touring agreement that can be signed upfront. These, as well as traditional buyer-broker employment agreements, can be modified so they do not establish an exclusive relationship with an agent. An agreement can also be modified to only apply to one specific property. Some agencies have created what could be called a 111 contract — one-day, one-property, one-page buyer agreement.

In other words, a browsing buyer can enter into numerous non-exclusive agreements and will only be responsible for compensating the agent who successfully sees a purchase offer through to closing. Of course, if you prefer, you can enter into an exclusive buyer-broker agreement, which can come with added benefits.

Many real estate companies are incorporating “buyer-broker agreement to show property” forms into their websites and mobile app features. This allows real estate agents to offer these contracts to potential buyers as online forms. However, it’s important to carefully read the terms of any agreement before signing.

What do these changes mean for commission rates?

Because the new real estate commission model relies on buyers negotiating directly with their agents, there are limited large transaction data sets that provide a new normal. However, some market experts and analysis groups estimate that real estate commissions could drop between 25% to 50% as a result of the changes.

Other industry watchers believe that while commissions are now decoupled and spread out among buyers and sellers, the combined amounts paid in a transaction may not be significantly lower, especially in more competitive markets.

It should be reiterated that NAR does not dictate commission amounts. This was true even before the settlement agreement.

Affordability impact on buyers is yet to be seen

Some industry observers are concerned that asking a buyer to come up with agent commission funds adds an additional financial burden that may be difficult for many home shoppers, especially first-time buyers.

For example, in a scenario where the seller of a $400,000 median-priced home does not agree to cover the buyer’s agent commission, the buyer will need to come up with an additional $8,000-$12,000 (2%-3%) above and beyond the down payment and traditional closing costs.

However, other industry experts believe the settlement changes will actually lower what were often considered inflated home prices, helping to make homeownership more affordable in the long run.

Commission examples on $400,000 home purchase

After the commission changes were announced, many buyers with limited upfront funds have chosen to only shop homes where the seller has agreed to cover the Realtor fees.

Partner with a trusted, proven agent

If you’re a buyer navigating changes to the real estate commission rules and regulations, interview several agents and ask direct questions. Be certain you understand the services they offer, their track record, and the terms in any agreements you’re asked to sign. A good guiding rule is: “Ask for what you want and get it in writing.”

Whether you are entering the house-hunting phase or preparing to sell, HomeLight can connect you to top-performing, trusted agents who have proven results in your market. We analyze nearly 30 million transactions and thousands of reviews to determine which agent is best for you based on your unique needs.

If you’d like to learn more about how the settlement changes might impact your buying or selling plans, the NAR has produced both a buyer’s guide and a seller’s guide with more details.

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