LOS ANGELES – Thinking of buying a home with the help of a real estate agent? You can no longer take it for granted that a seller will cover the cost of your agent’s commission.
Home sellers have traditionally offered a blanket commission to a buyer’s agent when they listed their home on the market. But that will no longer be allowed as of this weekend, when various changes to U.S. real estate industry practices are set to take effect.
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A homebuyer may still try to negotiate such an offer from the seller. But if they decline, that would leave the homebuyer on the hook for paying for their agent’s services.
The National Association of Realtors is behind the policy changes, which stem from its $418 million settlement earlier this year of federal class-action lawsuits that claimed U.S. homeowners were forced to pay artificially inflated real estate agent commissions when they sold their home.
Companies behind several major real estate brokerage brands, including Keller Williams, Anywhere Real Estate, HomeServices of America, Re/Max and Redfin, also agreed to pay millions and make policy changes to make home seller lawsuits go away.
The new rules, which go into effect nationally on Saturday, apply to brokers and agents representing clients looking to buy or sell a home advertised on a multiple listing service, or MLS, affiliated with the NAR.
They boil down to two significant changes: Blanket offers of compensation on behalf of sellers to buyers’ agents will no longer be included in listings posted on the MLS, though they can still be made through other means. And homebuyers will be required to sign detailed representation agreements when they hire an agent.
It remains to be seen whether the policy overhaul will lead to lower agent commissions or fewer sellers opting not to offer to cover the buyer’s agent fees.
But the changes are likely to have the biggest impact on home shoppers — especially first-time buyers already facing elevated mortgage rates, a shortage of properties on the market and record-high home prices. They will now have to factor in the cost of hiring an agent if a seller isn’t willing to cover it.
“This will have a negative impact on a buyer’s ability to purchase a home, and so there are going to be quite a few large scale changes in the buyer’s process,” said Bret Weinstein, CEO of Guide Real Estate, a brokerage in Denver.
Homebuyer representation agreements
Home shoppers who want to work with an agent will have to sign an agreement upfront that details the services that agent will provide and how much they will be paid, including whether it’s through a commission split with a seller’s agent.
Generally, an agent who represents a buyer typically receives around 2.5%-3% commission based on the purchase price of the home. Agents then share part of their commission with their brokerage.
Similar buyer representation agreements are already required in roughly 20 states. However, the new rules require that buyer agreements be completed before an agent begins working on a client’s behalf. That includes before the agent takes a buyer to tour a home, whether in person or virtually. A buyer can still go to an open house without signing a representation agreement.
“The big change now is that we are required to ask the buyer to commit to us early and hire us early in the process,” said Andrea Ratcliff, a Redfin agent in Indianapolis, where the policy changes were rolled out July 1.
One home shopper she spoke with was put off by the changes and the prospect of covering an agent’s fees, she said.
“They definitely weren’t ready to commit to me — weren’t ready commit to any agent, because they weren’t prepared to take on that cost,” Ratcliff said.
Removing buyer-agent compensation offers from home listings
Traditionally, a buyer’s agent’s commission has been paid by the seller. Agents who work with homeowners to market and sell their home would list the property on an MLS and include how much their client was offering to pay a buyer’s agent, a practice known as an offer of “cooperative compensation.” That’s when a seller agrees in advance to offer a commission on the sale of their home to be split between their agent and the buyer’s representative, typically around 2.5%-3% each.
The home sellers behind the lawsuits against the NAR and others argued sellers have had little choice but to offer to cover the buyer’s agent’s compensation in order to ensure their listing was shown to as many prospective buyers as possible.
To address this, homes listed on an MLS will no longer include a seller’s offer to cover the cost of a buyer’s agent’s services. However, they will still be allowed to advertise them practically anywhere else, including the agent’s own website, a display at an open house, or when communicating directly with an agent representing a prospective homebuyer.
Sellers may still elect to pay for a buyer’s agent’s compensation, but without the pressure of making a public, blanket offer on the MLS. Some may opt to pocket the savings and only cover their own agent’s commission.
“If there’s not a clear offer of cooperative compensation from the seller through their broker to the buyer’s broker, then yeah, it’s going to be part of (the) negotiation,” said Kevin Sears, president of the National Association of Realtors. “I think that will be something that we see changing in the marketplace.”
Where does this leave buyers and sellers?
Much of how the industry policy changes play out for buyers and sellers will depend largely on the state of the local housing market.
In a sluggish housing market where homes are taking longer to move and sellers are having to lower prices, it’s more likely that a buyer will be able to negotiate for the seller to cover their agent’s commission. In a hotter market, where properties are selling fast and receiving multiple offers, sellers will have the leverage to accept an offer from a buyer who isn’t asking for them to cover their agent’s fees.
While sales of previously occupied U.S. homes have been in a slump since 2022, years of underbuilding and other factors have kept the inventory of homes for sale at near all-time lows. That’s pushed up prices and fueled multiple offers for many homes, giving a clear edge to sellers in most markets.
Still, real estate agents say sellers should keep offering to cover the buyer’s agent commission.
“We’ve advised that it would be wise for sellers to continue to be open to covering some or all of the buyer’s costs, because the last thing you want to do when you are selling something is to make it complicated for someone to buy it or to limit the number of people who can buy it,” said Alex McEwen, associate broker with Selling Utah in Orem, Utah.
As for homebuyers, they will have to budget for the possibility that a seller won’t cover their agent’s fees. Those who can’t afford to do so may have to come to an arrangement with their agent to only pursue listings where the seller is offering buyer’s agent compensation.
Will commissions come down?
It’s unclear whether the policy changes will spur sellers or buyers to negotiate lower broker commissions, and whether they’ll succeed if they do.
Buyer-agent commissions have eased somewhat this year: The average buyer’s agent commission fell nationally from 2.62% at the beginning of the year to 2.55% through July 14, according to an analysis by Redfin. However, because home prices have kept rising this year, the average commission paid to a buyer’s agent in dollar terms has risen about 1.7% since January to $15,377.
Stephen Brobeck, senior fellow at Consumer Federation of America, expects that more sellers will be encouraged to negotiate with their agent lower their commission by at least half a percentage point.
“That represents, over the course of a year in the housing market, a very large sum of money,” he said.