For a long time, the fee is 6%.
For decades, real estate commissions have become somewhat standardized, with most home sellers paying a commission of 5% to 6% to cover both the listing agent and the purchasing agent.
Everything changed on Friday.
Groundbreaking agreement by the National Association. A slew of real estate agents will likely pave the way for new rules that will shake up the entire industry, impacting sellers, buyers, and the agents tasked with pushing deals through the finish line.
The most important rule change concerns how buyers’ agents are paid. Traditionally, home sellers paid commissions to both their agent and the buyer’s agent, which critics say stifles competition and drives up home prices.
The new rules prohibit most listing companies from disclosing how much a buyer’s agent is paid, eliminating the assumption that sellers are obligated to pay both agents.
Another new rule requires buyer agents to enter into written agreements with their clients, called buyer agency agreements. These contracts spell out exactly what services will be provided and for how much.
The changes are expected to take effect in July, subject to court approval, and will have a major impact on how real estate transactions proceed. Here’s how buyers, sellers, and intermediaries may be affected.
Reduced fees for sellers
The most obvious conclusion is that the seller can save a lot of money if the buyer ends up paying the real estate agent instead of the seller.
In February, the average home in Southern California sold for $842,997. Under the old system, where the seller paid commissions to both agents, the seller would have paid $50,580. But if you only had to pay 3% to one agent, you would save $25,290.
In that case, the buyer will invoice the agent. While the additional costs may seem high, Palm Springs real estate agent Michael Copeland said the final number could end up negating the same amount under the new rules.
“Purchasers were often told by agents that they didn’t have to pay anything and that the service was free,” Copeland said. “But that’s not necessarily true.”
Mr. Copeland said that when a seller pays a 6% commission to both agents to split, that number is inflated into the purchase price, so the buyer actually ends up paying more for the home and therefore paying less for it. He said he would pay the agent.
So under the new system, buyers may end up paying a 3% commission to their agent, but sellers only pay their own agent, potentially lowering home prices.
Increased flexibility for buyers
One of the biggest complaints about the current system is that buyers are excluded from the negotiation process. The seller paid each agent about 3% as a commission, and that was it.
A lawsuit brought against the National Assembly. of real estate agents claimed that this practice kept commissions artificially high and incentivized purchasing agents to “steer” them to properties offering higher commission rates.
But under the new system, more buyers will be dealing directly with their agents. You will be negotiating not only on the price, but also on what kind of services you want the agent to provide. And those expectations will be specifically outlined in the currently required buyer brokerage agreement.
“Some buyers may just hire a lawyer and pay a fee to handle the transaction,” Copeland said. “Or you might want to hire an agent as a consultant. Someone you can ask questions of.”
In the age of the Internet, access to real estate information has never been greater. Buyers can learn almost everything about a home on the market, including bedrooms, bathrooms, and square footage, as well as previous sales prices for the home and asking prices for similar homes in the area.
Buyers can also receive alerts to know exactly when homes in their price range go on the market, so some savvy shoppers choose to keep the inspection report up to date while letting the touring process take care of them. You may choose an agent who can help you read through the documents and file the appropriate documents. at the final stage of the transaction.
If a buyer wants a strong, hands-on agent who is available 24/7, they may be able to offer a rate of 3% or more. If you want an agent who can only handle the more technical elements of the transaction, you might offer 1% or 2%.
Some buyers choose to handle the process themselves without paying an agent at all.
“A good agent will be able to show their worth,” said Compass agent Michael Corsidy. “Agents who cannot demonstrate their value will not benefit from this.”
New dynamics and roles for agents
For many agents, representing buyers is rewarding because they can help them find their dream home, but the process is often more time-consuming. Agents may spend weeks or months preparing tours for clients, but there’s no guarantee they’ll end up buying the property.
That’s why many veteran agents prefer to represent sellers. Your work will often be more efficient. Especially in popular markets where trades can be completed in a matter of days.
Therefore, if the new rules guarantee less money to buyer’s agents, those agents may seek to switch positions and only represent sellers. Or, if they are unable to earn enough money representing buyers, they may exit the industry altogether. This trend is already occurring in Southern California’s post-pandemic real estate market.
Brent Chan, a luxury goods agent in San Marino and Pasadena, said the new rules could create agencies that specialize in certain types of sales.
“Just as there are agents like me who specialize in selling landmark properties, there will be a new group of agents who specialize in helping buyers of competitive properties.” Mr. Chan said.
He said agents with a track record of winning properties for clients could command higher commissions.
Alternatively, their deals may be performance-based. For example, an agent can represent you for 3%, and an additional 3% is added if the agent acquires the property on your behalf.
“Ultimately, if this ruling leads to buyers receiving better service from their agents, then it has merit,” he said. “But I think it will take some time before we understand the implications of these changes.”
