Big changes to how you buy and sell a home

A new set of rules is in effect on how real estate agents do business in the US has officially taken effect and the changes could potentially upend how Americans buy and sell homes.The rules are designed to change the way Realtors get paid and who pays them.

Two key changes

Traditionally buyers were not expected to pay their real estate broker directly. That’s because  fees to both the buyers’ agent and the sellers’ agent  were paid by a seller.

Commissions usually total 5% or 6% of a home’s selling price, which some would say have been baked into a home’s listing price, “inflating” home prices.

But beginning in mid-August 2024, seller’s agents will no longer be allowed to advertise commission fees to buyers’ agents on multiple listing services that we use to list and find homes for sale.

The second change affects the relationship between prospective home buyers and their agents. Buyers must now sign a legally binding representation agreement with their agent before they can begin touring homes together.

These agreements are designed to inform home buyers how their agent gets paid,­ and if sellers do not agree to pay the agent’s commission, the buyer would be responsible. They’re also used to inform buyers that this commission is fully negotiable as has always been the case.

The idea is if buyers are aware that they can negotiate commissions and that if they, in fact, do pay them, not the seller, it might create a more competitive market and possibly a menu of services.

A key element to these agreements is that a buyer’s agent cannot receive more compensation than what the buyer initially signed onto, even if a seller is willing to offer more.

Buyer beware

Some brokerages may find that buyers may get nervous about signing anything that commits them to a legally binding relationship with an agent before they begin touring homes. So, they create shorter-term contracts that cover a week­ or maybe even an hour for buyers to get comfortable with an agent before committing.

Different versions of these agreements are going to vary, state-by-state, brokerage-to-brokerage which may end up being thousands of them which could create even more confusion.

Will this affect home affordability

Some have warned that the new rules could have a chilling effect on the home-buying market since more buyers may now be expected to come up with cash to pay their own agents.

It remains unclear whether the cost of buying and selling homes in the US will immediately become cheaper for most people, though.

Mortgage rates are way below their peak and in the short-term, mortgage rates will have a larger impact on home affordability than any particular rule change.

The rate for an average 30-year fixed mortgage recently at 5.85%, still elevated compared to recent history but near the lowest levels in more than a year. 

That has a whole lot more effect on affordability than anything else and if mortgage rates come down further, rule changes will just be noise in the equation, compared to that.

What no one has been researching is that in the '90s there were only seller's agents. Buyers did not have agents and didn't understand that the agents only worked for the seller.

It was this misperception that brought change to how real estate commissions worked and listing agents then began sharing their commissions with the newly formed buyers agents so the buyer could have adequate representation. No one seems to remember this.

It’s yet to be proven if this is a win for buyers, as they could be obligated to the buyers agent commission if not agreed to be paid by the seller in the transaction and their lender is NOT going to like that. So fewer people will qualify to buy. And if the Seller pays less commission, of course they are going to pass that saving on to the Buyer as a lower house price. Does anyone really believe that? 

The existing way of having the Seller pay all the commission, and the Seller's agent pay the Buyer's agent half - cooperative brokerage - works perfectly well and has for decades and decades. Otherwise the Buyer's agent has no guarantee of getting paid and a buyer having representation. That is why it is done that way.

The truth is ALL the money in a real estate deal comes from the Buyer. At closing, the Seller has expenses that they pay out of that money, including commission.

In my opinion, the old way will stay, because: the Buyers either won't, or can't pay this new fee and there are perfectly legal ways for the Buyer to get their agent's fees paid by the Seller that can be part of the purchase agreement.

In my experience, Realtor fees have always been negotiable. Yes, historically the majority of agents charge between 5-6% which is split between the selling and buyers agent. How much does an attorney take when they win a case? There are many agents who negotiate their fees to get a deal done. Isn’t that negotiation? Fixed-price or flat-rate real estate companies have always existed as alternatives for sellers who don't want to pay agents. Zillow allows for for sale by owners to list their homes on their site, so the world can see them. In an industry where fees have always been negotiable, with sellers and buyers having a choice on how they want to sell and buy their home (FSBO, flat rate, unrepresented), the majority choose to have representation. Seems the ones who really won in this lawsuit changing the rules are the attorneys who made millions! Any home seller who signed up to be a part of the lawsuit is only getting $15-20. Did the attorney's negotiate or reduce their fees? Historically, attorneys have charged 30-40%, and their fees seem far less flexible.