Estimated read time: 5-6 minutes
There's been a lot of news lately about major changes happening in the real estate community. You may have heard that commissions, or the money people pay real estate agents for their help, could be dropping significantly as part of a settlement between the National Association of Realtors (NAR) and nationwide home sellers.
While this may sound like exciting news for buyers and sellers who want to keep a little extra cash in their pockets, there's a lot of confusion about what this really means. Should the settlement be approved, things will certainly change in the home buying and selling process. Unfortunately, you might not like all of these changes if you're on the buying side of things.
If you need someone to guide you through these changes and explain how they might affect you, here's what you need to know.
Changes in how commissions work
Commissions aren't disappearing. They're still a big part of real estate. But the way they work could be different. Traditionally, sellers decide how much to pay the agent helping the buyer. Now, if a judge approves the NAR settlement, sellers can choose not to pay the buyer's agent at all. Now the buyer would have to pay their agent instead.
This change affects how buyer-agent contracts are made, and it's important to understand what it means. In an article for Axios, writer Emily Peck explains that there are essentially three possible ways a buyer's agent might get paid:
A buyer could negotiate a flat fee out of their own pocket for an agent's services.
The buyer could agree to pay a percentage of the sale price to the broker or pay an hourly rate. Or they could skip having a broker entirely.
A seller could still cover the buyer agent's fee.
How it affects home prices
Some believe that these commission changes will lead to lower home prices on the market. After all, sellers will no longer need to boost the price to account for their agent and the buyer's agent's commission, right?
Well, according to Yahoo Finance writer Rebecca Chen, don't count on that happening. Chen argues that it's not commissions but rather supply and demand that's keeping house prices high.
"Homeowners look at market indexes, consult professional appraisals, and check what neighboring homes have sold for in setting list prices. None of that is changing due to the new commission structure," Chen writes.
Sure, the seller may benefit because they keep more money from the sale. But the buyer doesn't have that advantage.
Buying a house without help
The prospect of having to pay agent fees themselves could prompt buyers to purchase a home without help. Or they might work with a seller's agent directly to avoid extra fees. But the agent still works for the seller, which means the buyer still has to do everything alone. That includes everything from finding a home to arranging visits, reviewing inspections, handling the paperwork and negotiating prices with the seller.
Writing for U.S. News, Kristi Waterworth explains how a real estate agent can help significantly ease the stress of buying a home.
"Not only is the amount of money you're dealing with substantial, the many, many legal ins and outs of real estate transactions can be confusing for someone who doesn't work directly in the field," Waterworth says. "This is why many home buyers use a buyer's agent when they're searching for a new home to purchase."
The bottom line: A lot of buyers could become overwhelmed if they try to take this process on by themselves.
Problems for buyers expecting seller-paid commissions
Yes, there's still a possibility that a seller could cover commissions for the buyers' agent — but don't count on it.
"Home sellers could still agree through negotiation to pay the buyer's agent. But in a hot housing market, sellers may have little incentive to do so," Scott Horsley writes for NPR.
Challenges for first-time homebuyers
Buying a first home is already tough, and these changes might make it harder.
"Finding thousands of dollars to pay an agent could be a challenge," Horsley explains, "especially for first-time buyers, who typically have limited funds and also the greatest need for an agent's guidance."
Making real estate deals clear
In the past, brokers could list agent commissions on an MLS (multiple listing service). Under a new NAR rule, that won't happen anymore.
"This would mean that offers of compensation could not be communicated via an MLS, but they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals," the NAR explains.
Some could argue that this creates even more confusion among buyers and sellers because they won't have a clear picture of who's paying what.
Get the guidance you need
Understanding real estate can be tricky, but don't worry — you're not alone! If you still have questions about the new changes or need some extra guidance, The Stern Team is here to help. Whether you're buying, selling or just curious about real estate, they're here to support you every step of the way. Contact them today to find the answers you need to make confident decisions in your real estate journey.
