As of August 17, home sellers are no longer obligated to pay the commission fees for their buyer’s real estate agents. Yet, confusion remains about how exactly the new process will work. As the industry waits to see the full impact of last week’s changes, those on both ends of the home sales process should understand their options.
The most significant rule change following the historic National Association of Realtors (NAR) settlement covers how buyer broker commission fees are paid. Advocates for the lawsuit say the changes should bring a more free market system to the real estate industry.
However, some fear if home buyers assume the commission fee, the home they want may be out of reach. First-time homebuyers, especially, could be priced out of the market if they must now come up with thousands of dollars out-of-pocket to pay their agent. The most likely scenario, though, is that both buyers and sellers will have more power to negotiate.
NAR Lawsuit Background and Settlement
The 2019 class action lawsuit against NAR and the four largest national brokerage companies alleged seller agents offering buyer agents fixed commission violated antitrust laws and was akin to collusion and bribery.
“These agents claim they’re representing the buyer, but they’re performing a service for the listing broker,” says Douglas Miller, an attorney and real estate property law specialist who brought the case to class action firm Cohen Milstein. “They’re getting paid by the listing broker.”
Traditionally, listing agents explicitly include a buyer’s agent fee in the property’s multiple listing service (MLS) entry, a digital database where agents find and advertise properties. This incentivized buyer agents to bring their clients to properties that would yield higher commissions. The practice also meant home sellers paid what critics argued were inflated fees.
The $418 million settlement abolishes the so-called “Participation Rule” requiring listing agents to compensate buyer’s agents.
MLS systems have yet to reflect the changes, but agents no longer have to subscribe to MLS to offer or accept compensation.
Breaking down the Changes
The settlement aims to have buyers and their agents agree on commission fees directly rather than sellers or their agents setting rates. The goal is to do this without making it harder for buyers to pay their agent or afford a home.
Under the new rules, buyer agents must sign an agency agreement before providing services. This agreement specifies the services provided, the length of service, the scope of work, and agent pay.
“People are going to find that it takes a little more communication and negotiation,” explains Greg Kling, associate professor of accounting at the University of Southern California (USC) Marshall School of Business.
Buyer-agent fees open the door for industry innovation. For instance, a buyer could sign agreements with three agents at once, each covering a different metro area. An agreement could also outline a flat rate for each home the buyer tours with no additional commitment.
Using a Seller Credit To Pay Buyer Agents
Sellers can offer a seller credit or concession to help buyers pay their agent, which rolls agent fees into the mortgage and eliminates a significant out-of-pocket expense. Such concessions won’t count against concession limits on government mortgages, set at 4% or 6%, depending on the loan type.
The buyer receives the difference if the seller offers more concessions than the buyer agent’s agreed-upon fee.
For example, say a home seller agrees to pay their listing agent 3% and offers a 2.7% seller concession. Meanwhile, the buyer sets their agent’s fee at 2.5%, tours the home, and submits the winning offer. The buyer collects the 2.7% seller concession, giving 2.5% to their agent and keeping 0.2%; their agent’s fee merges with their mortgage. Buyers can ask for concessions if the seller doesn’t advertise one.
Overall, Miller said the buyer’s ability to negotiate agent fees could make them more competitive in a tight housing market. “The lower they negotiate that buyer broker fee, the less credit they need to ask of the seller,” he shares. “The less money you’re asking for, the more likely your offer is to be accepted.”
Advice for Buyers and Sellers
Buyers and sellers should review agent agreements carefully, as the Consumer Federation of America (CFA) has raised red flags about such agreements. In studying 43 contracts from 37 states, they found state Realtor associations typically write contracts to benefit agencies and brokers, not clients.
Instead, buyer and seller agents should not collaborate when drafting client contracts. Miller’s nonprofit, Consumer Advocates in American Real Estate (CAARE), offers buyer, seller, and agent resources, including consumer-friendly contracts.
Homebuyers concerned about affording agent commission may consider a discount real estate broker offering lower listing fees than agents.
Similarly, sellers buying a new home could use the same agent for both transactions, giving them additional leverage to negotiate lower commissions.
Sellers may feel empowered to sell homes without a real estate agent. With the elimination of MLS’s broker compensation fields, sellers using a flat fee listing service become more competitive.
Know Your Rights as a Buyer/Seller
Buyers and sellers should know their rights as real estate agents adjust to the rule changes.
Sellers should be wary of agents encouraging or insisting they pay agent fees to drive more traffic to their homes. If your home is priced well and in good shape, buyers will still want to see it.
Above all, buyers and sellers now hold the power to negotiate agent fees that better suit their budgets. Read agency agreements carefully and watch out for misinformation. Use trustworthy resources to get the best deal possible.
