By now, you’ve likely heard about the new rules regarding buyer agent commission now referred to as compensation stemming from the National Association of Realtors (NAR) settlement. These rules took effect on Aug. 1, 2024 but so far, aside from making the process more complex and harder to explain to buyers, we haven’t seen any significant changes. For those who may have missed the details, here is a quick overview of the changes and how they affect buyers, sellers, and Realtors.
WHAT PROMPTED THE CHANGE?
The National Association of Realtors (NAR) settled a class-action lawsuit alleging that their rules regarding real estate commissions violated antitrust laws, essentially forcing sellers to pay both the buyer and seller agent commissions, which inflated prices; as part of the settlement, NAR agreed to pay a large sum of money and change their practices to allow buyers to directly negotiate their agent’s compensation with no pre-set commission displayed on list. Of course since the change in August last year we have not seen prices come down as a result of the change.
HOW THE CHANGE AFFECTED REAL ESTATE
The NAR settlement has significantly altered how buyer agents are compensated. Previously, it was standard practice for the seller to pay the buyer agent’s compensation, which was determined before the property was listed.
This compensation amount was included in the Multiple Listing Service (MLS) and the listing agreement. However, under the new rules, buyer agent compensation cannot be included in the MLS or the listing contract.
Instead, it must now be negotiated separately, bringing a fundamental shift in how buyer agents are paid.
BUYER BROKER AGREEMENTS: A NEW REQUIREMENT
One of the most significant changes from the settlement is the requirement for buyers to sign a Buyer Broker Agreement before viewing any property. This agreement outlines the terms and responsibilities between the buyer and their agent, including:
- The agreed-upon compensation amount (usually a percentage of the sale price).
- The responsibilities of both parties.
- The duration of the agreement.
With this agreement in place, the buyer becomes responsible for compensating their agent. This means compensation must be negotiated with the offer to have the seller cover the buyer agent’s compensation or the buyer needs to pay it themselves at closing.
HOW IS THIS WORKING IN THE CURRENT MARKET?
In many areas, the real estate market has become more of a buyer’s market. Despite the new rules, sellers are still willing to pay buyer agent compensation to attract more buyers.
Here’s how the process typically works under the new system:
- Signing the Agreement: Buyers sign a Buyer Broker Agreement committing to a specified compensation amount for their agent.
- Making an Offer: When the buyer’s agent prepares an offer, they request that the seller covers the buyer agent’s compensation.
- Seller’s Response: If the seller agrees, the compensation is included in the transaction. If the seller counters with lower compensation or refuses to pay, the buyer is now responsible to pay it at closing. If this happens it may become another negotiation between the buyer and the buyer’s agent.
If the buyer cannot cover the agent’s compensation and the seller refuses to pay, the buyer may have no choice but to withdraw their offer and look for another property where the seller is willing to pay the compensation.
WHY ARE SELLERS STILL PAYING BUYER AGENT COMPENSATION?
With more homes on the market than buyers, many sellers are willing to pay buyer agent compensation to make their property more attractive. Offering to cover these costs can widen the pool of potential buyers and increase the likelihood of a successful sale.
WHAT BUYERS AND SELLERS SHOULD KNOW MOVING FORWARD
For buyers, understanding their financial responsibility is crucial. They should discuss compensation expectations with their agent and how to negotiate these costs with the seller. They also need to discuss and have a plan on what to do if the seller is unwilling to cover the cost.
For sellers, offering buyer agent compensation remains a strategic tool to attract interest and ensure a smoother transaction. This becomes a point of negotiation when an offer is received, and whether you agree to pay buyer agent compensation will depend on several factors — such as the current market conditions, how quickly the home sells, and whether there are multiple offers.
As the real estate landscape continues to evolve under these new rules, staying informed and working closely with experienced real estate professionals can help both buyers and sellers navigate the changes effectively.
Please don’t hesitate to contact me if you would like more information on the new rules or buying or selling a home.