How real estate commissions could change
In real estate transactions, the commission is split between the seller’s and buyer’s agents. This fee is set and paid out by the seller from the proceeds of the sale, although sellers often aren’t aware of how much they are paying since it’s baked into the sale price.
Within the industry, this is known as “cooperative compensation.”
For a home worth $500,000, a 6% split commission worth $30,000 would be included in the price, for example.
While NAR doesn’t dictate commission rates, it currently requires seller’s agents to advertise the buyer’s agent’s commission on the Multiple Listing Service, a listings database used by real estate agents to identify homes for their clients. The exact breakdown of fees is typically visible only to real estate agents.
Plaintiffs in the lawsuit argue that rates advertised on MLS sites incentivize buyer’s agents to prioritize homes with the highest fees rather than finding the best home for a client.
As a result of the settlement, NAR will drop the requirement to advertise commission fees on MLS sites.
Another outcome of the settlement is that buyers will have to sign formal agreements with buyer’s agents to ensure that they are informed about what their agent will charge for their services.
The changes are planned to go into effect by mid-July but are subject to court approval. NAR did not respond to CNBC Make It’s request for comment.
How these changes could lower costs for buyers and sellers
In effect, the rule changes “decouple” buyer and seller commissions, which would make them easier to negotiate, says Stephen Brobeck, senior fellow at Consumer Federation of America. As a result, homeowners could save money on commission fees when they sell their home.
“The extent of price competition will depend on consumers paying attention to the issue, comparison shopping and seeking to negotiate rates,” he says.
He anticipates that fees will gradually fall to an average of 3% to 4% “in a competitive market.” For homes priced over $500,000 with a commission of 4%, that works out to more than $10,000 in savings, compared with commissions of 6%.
While homebuyers could forgo a buyer’s agent altogether, experienced agents offer “conscientious fiduciary representation” to their clients, says Brobeck. In other words, good agents have expertise in real estate transactions and should be able to negotiate the best price on your behalf.
Exactly how buyer’s agents will be compensated isn’t yet clear.
Cooperative commissions could remain an option, but as a separate contract negotiated by the buyer and seller. Other options include flat fees for buyer’s agents, “a la carte” prices or hourly rates based on the level of service.
“Some buyer agents show 40 houses and get the same compensation as a buyer agent who shows one house,” says Brobeck. A fee for additional services could end up being more fair to buyer’s agents who put in the extra work to find a home for their client, he says.
With a new fee structure, some buyers could pay more
With cooperative compensation, the seller covers the buyer’s agent fee. But for anything outside that model, there’s a question of how the buyer’s agent will be paid.
In that case, the commission could be paid by the homebuyer. However, this is money they wouldn’t normally spend through cooperative compensation. By eschewing cooperative compensation, buyers could add thousands of dollars to their home purchase.
That would most affect first-time buyers who’ve barely scraped together a down payment, as the buyer’s agent fee might be a burden they can’t afford, says Marty Green, principal at mortgage law firm Polunsky Beitel Green.
That said, a seller who doesn’t cover the buyer’s agent fee might need to lower their asking price by a few percentage points because “buyers will balk at paying the price that previously had the buyer’s agent commission baked in,” says John Graff, CEO and broker at Ashby & Graff Real Estate.
Real estate agents who spoke with CNBC Make It agree that there is uncertainty on how it will balance out. By decoupling buyer’s and seller’s agent commissions, there’s room for more negotiation, which means more options.
“No one knows definitively how this is going to change things,” says Graff. But he thinks a discount on the total commission fee is likely.
Either way, consider negotiating real estate fees with agents directly, as you have more leverage than you might think. Only about a third of Americans negotiate for lower fees, and of those that do, 64% are successful, according to a recent LendingTree survey.
If the new fee model encourages more competitive pricing amongst agents, then consumers will be in a good spot to negotiate for more savings.
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