Understanding the August 2024 Real Estate Practice Changes and Their Impact on Consumers
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The National Association of Realtors (NAR) entered into a settlement that went into effect on August 17, 2024. The main changes initiated by the settlement pertain to real estate agent commissions. Prior to the settlement, commissions were always negotiable between real estate clients and their agents. However, through custom and practice, buyer agent commissions were often paid from the seller agent’s commission. Thus, for example, a 5% seller’s agent commission would generally be split, with 2.5% given to the buyer’s agent.
Under the new rules, buyers enter into a direct compensation agreement with the agent they are working with and sellers enter into a compensation agreement with the listing agent they are working with. The buyer is bound to the compensation agreement they make with their agent, just as the seller is bound to the agreement they make with their listing agent.
The seller can choose to offer or deny compensation to the buyer’s agent. If the seller does not offer compensation to the buyer’s agent, the buyer is responsible for compensating their agent. Buyers can do so by paying out of pocket or by asking in the offer they submit to the seller that the seller pay their agent’s commission.
Because many buyers, especially first-time home buyers, struggle to get together monies for a downpayment, the idea of paying for the commission of their real estate agent may seem untenable. Furthermore, at this time, buyer agent commission payments are not allowed to be financed as part of a mortgage. Because of this, sellers may choose to offer compensation to a buyer’s agent, but they do not have to. If the seller chooses to offer compensation to the buyer’s agent, this information will no longer appear on the MLS.
Sellers who do not offer compensation to buyer agents should realize several things, namely: (a) they may have less buyers willing to place offers on their home because buyers may not be able to afford to pay the purchase price plus their agent commission; (b) the offers that they get may be lower to accommodate the buyer’s need to pay their agent’s commission; or (c) they may have buyers requesting that the seller compensate the buyer’s agent, anyway, despite clear indication by the seller that they do not intend to.
Because buyers, at the end of the day, are ultimately responsible for the payment of their agent’s commission, buyers must sign written agreements that lay out the specific terms of compensation and the services being provided to them, before any real estate agent may show them a property, whether in-person or virtually. Similarly, even if the seller verbally states that they will pay the buyer agent commission, any agreement to do so, as well as the amount, must be agreed to in writing.
This post is just a summary of some of the main points that will impact buyers and sellers. These rules are new and, as such, will likely be subject to change. Please do your due diligence and ask the real estate professional you are working with about their compensation and what services they are providing you. A summary created by the National Association of Realtors relating to the changes and their impact can be found here.