Key Takeaways
- Two key changes to the homebuying process are scheduled to go into effect Saturday, stemming from a settlement that ended a lawsuit against the National Association of Realtors by home sellers.
- The changes could pressure some agents to offer their services at lower rates than they have in the past.
- Buyers will have to sign an agreement with the agent representing them before touring any houses, and Multiple Listing Services will no longer list offers of compensation to buyer's agents.
Starting Saturday, many home buyers and sellers will have to grapple with an issue they may not have given much thought to before: What exactly should the buyer’s agent do, and how much should they be paid for it?
Those issues are coming to the forefront thanks to a lawsuit settlement reached earlier this year between the National Association of Realtors (NAR) and a group of home sellers. The sellers sued NAR accusing the association of colluding to keep buyers’ agent fees high.1
Saturday is the deadline for several changes required by the settlement to go into effect. The settlement requires buyer’s agents to sign an agreement with their clients before showing them a house—as many agents already do—and stops sellers from making commission offers to buyers’ agents on the Multiple Listing Service (MLS) database that real estate agents use to share details about properties for sale.
The settlement could shake up a longstanding industry practice: the 5%-6% commission real estate agents typically charge for selling a house, which is usually split evenly between the agents of the buyer and the seller.
What Will Change?
Some buyers and sellers have already been rethinking compensation ahead of the deadline, said Phil Crescenzo Jr., vice president of the southeast division at Nation One Mortgage Corporation.
“It's forcing the conversation to be had a lot more often than it was before,” he said in an interview with Investopedia. “And that's probably the point.”
Some buyer’s agents he works with who used to typically get a 3% commission have renegotiated and settled for 2.5% instead, he said.
Some experts have predicted removing the offers from MLS will make commissions less automatic, and ultimately reduce the amount that buyers and sellers pay. The U.S. could end up looking more like other countries, where agent commissions are below 2%, Ben Harris and Liam Marshall, researchers at the Brookings Institution think tank, speculated in an analysis in March.2
That would represent significant savings for homebuyers and sellers, and make the business much less lucrative for agents. For example, 6% commission on a median-priced home selling for $426,900 would be $25,614, compared to $8,538 if it was just 2%.
Although the association noted that the 5%-6% commission split wasn’t officially required, sellers had a strong incentive to split commissions with buyer’s agents under the old system. While sellers could offer less than the standard commission, buyers' agents could steer their clients toward properties that offered higher rates.
It’s possible that many agents will simply negotiate the standard deal outside of the MLS, but the shakeup leaves room for other models of compensation, such as buyers' agents being paid by the hour or a flat rate, Harris and Marshall wrote.
Realtors Sanguine About the Changes
Some veteran real estate agents took the changes in stride. They reason the process of buying and selling a house is complicated—most people will continue to want someone to help them through the hassle and get the best possible price.
“The professionals will survive,” said Jeff Scislow, an RE/MAX agent in Apple Valley, Minnesota, who has been in the business for 38 years. “They always have and they always will. And our services will always be needed.”