Today, sweeping new rules come into effect that will fundamentally change the way real estate agents are paid for selling or buying a home.
The changes, the most sweeping to the sector in a century, will throw a spanner in the works for the notorious commission payments charged by brokers.
Before August 17, a broker working on behalf of a seller would charge his clients a fee of about 5-6 percent, much higher than almost anywhere else in the world.
For example, the sale of a $1 million home would generate $60,000 in commission for the selling agent involved. That fee was then usually split with the buyer’s own agent.
These costs were passed on to home prices, causing prices to rise. Realtors drove buyers to homes with higher commissions.
After a series of successful lawsuits alleging that the practice violated antitrust laws because agents could collude to inflate commission rates, the National Association of Realtors (NAR) settled for $418 million and agreed to change its rules.
A major change is coming to the way homes are bought and sold in the US
“Buyers will negotiate how much they are willing to pay their agents,” explains home and mortgage expert Holden Lewis
The first change means that brokers are no longer allowed to post information about fees in the so-called Multiple Listing Services (MLSs).
Only paying members of the NAR are allowed to call themselves “Realtors.” Furthermore, only they have access to the MLS database of properties for sale.
Previously, sellers had to indicate in these databases how much commission their client paid.
In theory, this allowed the purchasing agent to ‘steer’ buyers to houses for which the commission was higher and where they could make a higher profit when they sold them.
Today, compensation details can still be shared, but this must be done in person or by phone.
The second rule change requires purchasing agents to be open about their compensation.
After August 17, the real estate agent and a potential home buyer must enter into a written agreement before they can even view a property for sale.
The agreement states that buyers may be responsible for paying their own real estate agent fees if a seller chooses not to cover those costs.
Some analysts argue that the changes will give potential buyers more power to negotiate with agents during the process.
“Buyers negotiate how much they pay their agent,” explains home and mortgage expert Holden Lewis.
“But that doesn’t mean buyers have to pay their agents out of pocket. They can ask sellers to pay some or all of the buyer’s agent’s commission.
“Some sellers may balk, especially if inventory is low and a bidding war breaks out, but most sellers are willing to negotiate on the agent’s fee,” Lewis said.
Real estate agents have reacted to the move with mixed feelings since the announcement in March.
According to an analysis by TD Cowen Insights, brokerage commissions can range between 25 and 50 percent.
However, this could create opportunities for brokers with other business models, such as flat fees rather than percentage-based commissions, to excel.
“These changes will provide consumers with more clarity and choice when buying and selling a home,” NAR President Kevin Sears said ahead of the changes.
“I am confident that our members can prepare for and embrace this evolution in our sector and help consumers navigate this new landscape.”
While the changes are beneficial to merchants, they could also cause significant disruptions to the livelihoods of the NAR’s 1.6 million members.
“I feel like this is giving real estate agents an unfair reputation,” agent Desirae Wykoff told DailyMail.com after the Missouri ruling. “I would imagine a lot of these people will have their licenses revoked.”
Real estate agent Desirae Wyckoff told DailyMail.com last year: ‘I feel like this gives real estate agents an unfair reputation.
Real estate agents will see major changes in the way their fees are charged and paid
‘When you look at this profession from the outside, it looks like easy money. It looks like you’re doing a little bit of work for a lot of money, but it’s not at all,’ she told DailyMail.com.
Meanwhile, $418 million has been set aside to compensate Americans who were overcharged by real estate agents.
Homeowners who have sold their homes in the past seven years may now be eligible for a payout, although they file a claim no later than May 9, 2025.
To qualify, sellers must have listed their home with a Multiple Listing Service (MLS) and paid a commission to a real estate agent.