The National Association or REALTORS® (NAR) announced on March 15th, 2024 that it came to a settlement agreement as a result of recent court cases. The big change that NAR agreed to was that property listed on a multiple listing service (MLS) would no longer be able to include compensation to buyers’ agents. This change will go into effect in mid-July 2024.
Traditionally, the listing agent negotiates with the seller the total amount of the commission (usually as a percentage of the sales price) and how much of that commission they will get for listing the home and how much will go to the buyer’s agent. All commissions are paid at closing when the seller receives their cash from the sale. The primary advantage of having the seller pay both commissions out of the sales proceeds is to allow first-time and/or low-income buyers to have an opportunity to purchase a home and to be represented by a real estate professional. Many of these types of buyers wouldn’t have the cash to pay their agent a commission on top of saving enough money for a down payment and for closing costs. Essentially what’s been happening here is that the real estate commission has been built into the price of the home, which is often financed.
Under the new rule, it may be possible that the buyer agent’s commission is still reflected in the price of the home, but it won’t be automatic like it is now. Even though the seller will no longer be able to publish an offer of commission to the buyer’s agent, a commission to the buyer’s agent can still be negotiated in the contract between the buyer and seller. But to make this work, buyers’ agents will have to require their buyers to sign a buyer’s representation agreement which specifies how much the buyer’s agent will be paid for their services at closing. It could be a flat fee or it could be a percentage of the sales prices. If necessary, the buyer would then try to negotiate with the seller to pay that fee or negotiate with the seller to pay a portion of the buyer’s total closing costs.
Although there are many uncertainties as to how this will change the overall process of buying and selling real estate, please read below on what I think is important for buyers and sellers to know now if they are buying or selling a home in the second half of 2024.
What Buyers Should Know
Home buyers should think about how well they understand the home purchasing process. Have you purchased a home before? If so, how recently? Do you currently live in the area where you are purchasing the home? Are you comfortable with negotiating a price and contract terms, including any contingencies that need to be specified? Can you order and analyze inspections, and work with lenders to assure a timely closing?
If you have purchased a home in Florida in the last 10 years or so, and can answer “yes” to all of these questions then you may be OK making the purchase without hiring a buyer’s agent. In that case, when you are interested in a home, you would need to contact the agent listing the home to show it to you. Right now, it’s unclear how cooperative listing agents will be dealing directly with buyers, but if they want to keep their seller happy they will likely show you the home. Just don’t expect them to represent your interests if you choose to make an offer on the home. Keep in mind that they won’t be paid extra if you come to them without your own agent (unless that is negotiated upfront with you or the seller). This is unlike the current situation where if the buyer uses the listing agent directly, in most cases, the listing agent gets both the listing commission and the published buyers’ agent commission.
So, if you as the buyer decide you want to be represented by a buyer’s agent, let’s discuss how you would proceed. My advice isn’t completely different than it was prior to the compensation change: shop around and find a knowledgeable agent that you trust. The difference is now you will also be considering the fee that the agent charges for their services. In the past, many people didn’t bother to shop for a buyer’s agent, they just used their friend or family member who’s an agent, or they would just work with the first buyer’s agent they come across. There was no fee to negotiate because the buyer’s agent’s commission was determined by the commission offered on the property the buyer chose. But this approach was never a good one! The choice of who will represent you, in what might be the biggest purchase of your life, is extremely important!
Other pages of this website provide resources to help you find buyer’s agents and identify which agent is best for you. When discussing their fees, just remember that everything is negotiable! And be sure to read the buyer agreement in detail before signing. If the agent is trust-worthy, they will have explained their compensation in detail. If you find unexplained charges in the agreement then you may not want to sign with that agent. And be aware that once this compensation change goes into effect in July, you might find that some buyer’s agents still don’t ask you to sign a buyer’s representation agreement. Do NOT work with one of those agents! I guarantee you that they are not working for free, and at some point they will expect to be compensated. It’s unacceptable for you not to know up front how much they intend to charge.
If you have any comments or questions for me, please put them in the comment section below or message me directly.
What Sellers Should Know
The big difference for sellers with these changes in agents’ compensation is that when they list their home, they will only be agreeing to the compensation provided to the listing agent they are hiring. But understand that many buyers will be asking the seller to cover some of the buyer’s closing costs (which will likely include the buyer’s agent’s commission), so they should factor that into the asking price. The settlement that NAR made does still allow for sellers to publish an offer to pay a percentage of the buyer’s closing costs (they just can’t offer compensation directly to the buyer’s agent). Only time will tell whether or not offering to pay some of the buyers’ closing costs will become a common practice for sellers, but it certainly won’t be a requirement of listing the property on the MLS. And if a fixed amount isn’t published in the MLS, the seller can negotiate the amount they will contribute with each individual buyer. Currently, my advice to sellers is not to offer to pay closing costs in the MLS. I suggest that sellers wait and see what the prospective buyers ask for.
Also, I highly recommend that sellers ask their prospective listing agents up front how they will handle requests to show their home from a buyer that doesn’t have an agent. Keep in mind that when this has happened in the past, if the buyer didn’t have their own agent the listing agent would get both the listing commission and the buyer’s agent’s commission (unless there were special terms defined in the listing agreement that gave them a lesser amount). So, a seller may find that some listing agents would be reluctant to show their home to a buyer without an agent. A buyer without an agent will undoubtedly cause extra uncompensated work for the listing agent. Typically it’s the buyer’s agent that makes sure the buyer is on track for an on-time closing, so when a buyer has no agent of their own, the listing agent will have to fill this role. I can confirm that it is often a lot of extra work having to help with both sides of the transaction! Even if the agent isn’t representing the buyer at all (called a “no brokerage relationship”), that agent will still want to make sure everything goes smoothly for the seller’s sake. So, sellers really should discuss this possible scenario upfront with their listing agent and put terms in the listing contract regarding how this will be dealt with. If sellers have any comments or questions for me, please put them in the comment section below or message me directly.
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