The New Way to Buy and Sell Homes

As you may have heard, the National Association of Realtors (NAR) recently reached a $418 million settlement that is set to reshape the U.S. real estate industry. This lawsuit, Burnett v. National Association of Realtors, arose from accusations of antitrust violations, focused on NAR's practices that allegedly inflated buyer agent commissions. Along with several similar lawsuits in states across the United States, this case led to significant changes that took effect on August 17, 2024. Let's answer a few of the common questions around the new way to buy and sell homes.

Key Questions Answered

Do You Need An Agreement With Your Agent?

Buyers and their agents must have a signed representation and compensation agreement, known as a Buyer/Broker agreement, before touring any homes. This agreement details the terms of the representation and the compensation that the buyer’s agent will receive. Having a signed agreement in place prior to the start of services is similar to what you may encounter in other industries such as the legal and medical fields. Previously, written agreements between buyers and their agent were optional.

Do Sellers Have to Pay the Buyer's Agent Commission? 

No. In the past, it was standard practice for the seller to pay the listing agent a commission, which was then shared with the buyer’s agent through a process known as “broker-to-broker cooperation.” In this model, the seller would be paying both sides of the commission. This practice has been eliminated. Now, the buyer’s agent’s compensation is independent of the listing agent’s compensation and must be negotiated separately by the buyer’s agent.

Are Buyer’s Responsible for Compensating Their Agent?

Yes. Compensation for the buyer’s agent is now paid directly or indirectly (in the form of concessions) by the seller, the buyer, or a combination of both. The three possible compensation scenarios are:

1. The seller pays the buyer’s agent’s full compensation.
2. The seller pays a portion of the buyer’s agent’s compensation, with the buyer covering the remainder.
3. The seller does not contribute to the buyer’s agent’s compensation, requiring the buyer to pay the full buyer’s agent’s fee.

Essentially, if the Buyer receives concessions from the Seller, it is up to the Buyer to decide how to use the funds. The Buyer is still required to pay their agent the agreed upon amount on the Buyer/Broker agreement but where the money comes from is up to the Buyer. Of course, most Buyers will probably elect to use the Seller concessions to cover this amount.

How Can You Tell If A Seller Is Willing To Offer Concessions?

Concessions or compensation offered to the buyer or buyer’s agent will no longer be advertised in the MLS. Buyer's agents will need to contact the listing agents on a per-property basis to inquire about any potential seller-paid concessions or compensation for the buyer’s agent. 

How Will This Change the Real Estate Market?

It’s too early to assess the impact of these new rules but we are hopeful that not too much will change, except some extra paperwork.

Some sellers might view this as an opportunity to save money by not offering compensation to the buyer’s agent. However, they may overlook the fact that many buyers either cannot afford to pay the commission themselves or will avoid touring homes where they know they must cover this cost. This could result in fewer buyers viewing their homes, longer times on the market, and lower sale prices compared to homes where compensation is offered.

Recent studies indicate that over 80% of homebuyers cannot afford to pay a buyer agent’s commission, as most are already financially stretched due to high down payments and interest rates. These new rules may limit the number of homes many buyers can afford, with lower-income buyers being the most affected.

Our expectation is that within a few months, real estate transactions will resemble those before August 17, with most sellers continuing to pay the buyer agent’s compensation. The biggest challenge will likely be navigating the new rules and managing the additional forms, which add more complexity to an already complicated process. It will be interesting to see how these changes unfold in the coming months. Contact Arrive Real Estate Group for the latest information as we navigate the new era of real estate.