New rules mean big changes for both home sellers and buyers.

A recent lawsuit settlement involving the National Association of Realtors (NAR) brings significant changes in how real estate commissions are handled starting August 17, 2024. Here’s a quick look at what home buyers and sellers need to know.

How sellers are affected

Traditionally, sellers have paid the commission for both the seller’s agent and the buyer’s agent. Often, this was 6% of the purchase price with one-half going to each agent. Under the new rules, sellers may or may not agree to pay the buyer’s agent.

For home sellers, paying only their agent allows them to cut commission costs by half and keep more of their equity. However, some home sellers may choose to pay a commission to a buyer’s agent in order to entice more real estate agents to show their home. Sellers willing to pay a buyer’s agent may offer a percentage of the sale or a flat fee.

How buyers are affected

Home buyers need to be prepared to have more cash on hand to compensate the buyer’s agent and to negotiate the commission or fee with the buyer’s agent. Buyer’s agents are expected to seek 2.5% or 3% of the purchase price to cover their services. Alternatively, some agents may work for a flat fee or by the hour.

At the time of this writing, Freddi Mac and FHA do not allow commissions to be included in a mortgage.

Some buyers may ask the home seller for financial concessions to cover the cost of the buyer’s agent commission. However, buyers should be aware that doing so will make their purchase offer less attractive to the seller than one without a request for concessions.

Another thing buyers need to be prepared for is that a buyer’s agent will require an up-front, signed agreement before showing a home. The agreement will include how the agent gets compensated.

A home buyer who chooses not to use a real estate agent needs to keep in mind that the seller’s agent always acts in the seller’s best interest. If you go this route, it’s wise to hire a real estate attorney who will look out for you.

New ways of doing business developing

Just as technology has changed options for investing in stocks and booking travel, there are new players in real estate in response to the changes to NAR commission rules. One new digital start-up, Shay, offers guidance and tools for home buyers who wish to self-represent for $500. The service is too new to have reviews from actual users, so it’s not yet clear how they’ll affect home purchasing dynamics. Also, it’s not unreasonable to expect that more technology players will enter the real estate business, resulting in even more changes in how home deals get done.

When you’re ready to buy

As always, we’re here to help our members get the home of their dreams, including first-time home buyers. Check out our competitive mortgages and home loans.

 

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