This month, the home buying process was changed following a settlement reached by the National Association of Realtors (NAR) that had alleged the NAR and some major brokerages had been inflating commissions charged by Realtors. This was based on the long-standing requirement of a home seller having to state what the buyer’s agent would be paid. The lawsuit that stemmed out of Missouri alleged that requirement constituted a non-negotiable offer imposed on the seller. Following the settlement reached earlier this year, the NAR changed the process, and if you’re looking to make a home purchase, knowing what has changed is important.
Starting mid-August, the primary listing agreement no longer permits the seller to state on the MLS system (used by agents) how much the buyer’s agent will be paid. Under the new rules, those selling homes are only required to pay their own agent (seller’s agent) and are no longer required to specify what they may pay the buyer’s agent. Historically, it was the home seller who paid the commissions for both agents (buyer’s and seller’s). By disallowing compensation to be shown on the MLS system, the intent is to avoid a perceived notion that Realtors would elect to only show buyers properties with compensation that was desirable.
For those buying homes and wishing to utilize the skills and expertise of a qualified buyer’s agent, they may have to pay their agent directly and negotiate what their agent will be compensated via an agreement. Likewise, the home seller can still elect to pay the buyer’s agent, but that is their choice. If elected, the seller can add a compensation addendum to the listing agreement that can set a percentage or dollar maximum or allow for the seller to consider a compensation offer for the buyer’s agent submitted as part of a purchase agreement (offer).
Another part of the NAR changes places restrictions on how a home buyer works with an agent. Prior to being able to show a prospective buyer property, the client must sign a buyer representation agreement with the agent. These agreements will state several items including the type and timeframe of representation, type and location of property(ies), compensation to the agent, and if the buyer is financially able to compensate their agent. Buyers will also need to sign paperwork as the walk into an open house; this paperwork states that the agent holding the open house is not their real estate agent.
With these changes so new, the real-world implications are still being sorted out. However, does this mean the seller ultimately won’t compensate the buyer’s agent or that buyers should forgo paying an agent? Will a buyer offer less so they can retain funds to pay their agent? Will sellers discount the price figuring the traditional 2-3% buyer’s agent commission is no longer a factor? Will everything remain the same and sellers still offer commissions to buyers’ agents? Time will tell, but one way or another, a properly priced home will likely still have commissions factored into the price and that will be shared by the buyer and the seller. Having professional representation remains prudent; especially for first time home buyers. Our advice? If you’re looking to enter a real estate deal soon, and whether you’re buying or selling, play it safe and have discussions with a qualified agent to better understand the new process.
