New Commission Rules for Home Buyers and Sellers

Longstanding rules that have governed the home-sales commission process are being abandoned by the National Association of Realtors (NAR) following an October settlement over claims that the “real estate industry conspired to keep commissions high.” The new rules are expected to be implemented by mid-July as part of the agreed upon terms of NAR’s $418 million legal settlement, resulting in changes for both home buyers and sellers.  Buyers typically don’t pay their own agents out of pocket for the commission cost that sellers typically decide would be paid before listing a home for sale under the current rules. The current standard commission — “5% to 6% of the purchase price split between the seller’s agent and the buyer’s agent — is among the highest in the world.” Under the new rules, if buyers want an agent to represent them, most will be required to “sign an agreement detailing how much their agents will be paid for services,” which could be based on an hourly rate or a flat fee negotiated between the buyer and the agent. It is likely that these agreements will require the buyer to pay the agent directly if the home seller is unwilling to cover the cost – adding costs to first-time buyers with limited cash. Sellers may benefit from a decline in commission costs under the new rules since they “might only pay their own agents, or they might pay a lower amount to a buyer’s agent.” In addition, “home sellers will no longer need to advertise upfront how much they will pay a home buyer’s agent;” and although they can still pay the buyer’s agent if they want to,” most sellers “wouldn’t be able to include that offer in the listing.” Looking ahead, the potential exists that the business will be less lucrative under the new commission system for many agents, prompting some to shift away from the industry.