Changes in Realtor Compensation in 2024
Big changes are coming to Realtor compensation in August, affecting both buyers and sellers. Let’s break down the key points without diving into the complexities of the NAR lawsuit and DOJ decisions.
Seller/Listing Agent Compensation
Not much will change for sellers regarding the compensation (or commission) paid to a Realtor for listing, marketing, and selling a house. The commission structure remains largely the same.
Buyer’s Agent Compensation
A significant change is the shift towards the term “consideration.” Previously, sellers would agree to a total commission percentage with the listing agent, who would then split it with the buyer’s agent. For example, with a 6% commission, the listing agent and buyer’s agent would each receive 3%. This split was typically advertised in the MLS (Multiple Listing Service).
Starting in August, commissions will no longer be displayed in the MLS.
Instead, buyer’s agents must request their commission as part of their client’s offer. The seller will then “consider” this request. This means that the buyer’s agent’s compensation is no longer guaranteed by the seller.
Buyer’s Agent Relationship with Buyers
Traditionally, buyers received free representation from a Realtor, paid through the seller’s commission. This arrangement is changing. Buyers must now sign a nine-page compensation agreement with their agent, which stipulates that the buyer is responsible for the agent’s commission if the seller does not pay it. This agreement includes an option for buyers to indicate if they cannot pay the agent’s commission, potentially affecting their representation.
Pros, Cons, and Changes You Can Expect
Selling/Listing Agent Commission
For sellers, the process of negotiating Realtor compensation will not change significantly. The services provided by Realtors, such as market research, pricing strategy, marketing, and negotiation, remain essential. Sellers typically don’t mind paying for these services, which help ensure a smooth transaction.
Buyer’s Agent Commission
The core issue in the NAR lawsuit and DOJ decision was to reduce commissions, which may result from the new “de-coupling” of shared commissions. Offers will now include a commission request, which the seller can consider. This could lead to various scenarios, such as a high offer with a high commission request or a lower offer with a lower commission request. Sellers will need to evaluate offers based on the net price, considering both the offer amount and the commission requested.
Paying the Buyer’s Agent Compensation Real estate transactions are legally complex and often involve significant financial and emotional decisions. To avoid potential litigation, offering a Buyer’s Agent Commission is generally in the seller’s best interest. This ensures buyers have professional representation, reducing the likelihood of disputes after the sale.
Pros and Cons of Offering 0% Buyer’s Agent Compensation. A new opportunity for sellers is the option to list their property in the MLS without offering a buyer’s agent commission, potentially attracting buyers who do not have or do not wish to use a Realtor. However, this approach carries risks, such as missing out on offers from buyers who cannot afford to pay their agent’s commission and may lead to litigation if issues arise post-sale.
What Other Changes Might Happen?
1. Buyer’s Agents Won’t Work for Free: The cost of running a real estate business and the risk of litigation make it unlikely that experienced agents will work for minimal compensation.
2. Increased Importance of Selecting a Realtor: Buyers will be more selective in choosing their agents, considering the potential out-of-pocket costs.
3. Inexperienced Realtors May Leave the Industry: The new compensation structure may drive less experienced agents out of the market.
4. Commissions Could Stay the Same or Increase: Despite expectations of lower commissions, rising costs in the industry may counteract this trend.
5. Emergence of New Services: We may see new services, such as quasi-For Sale By Owner brokerages, buyer representation from escrow companies, or online and AI-driven buyer assistance tools.
6. Impact on FHA and Low-Income Buyers: These buyers may find it harder to secure affordable representation, particularly in lower-priced markets.
These changes represent a significant shift in real estate transactions, affecting all parties involved. Both buyers and sellers need to understand these changes and prepare accordingly.