LOS ANGELES — Thinking of buying a home with the help of a real estate agent? You can no longer assume that a seller will cover the cost of your agent’s commission.
Home sellers traditionally offered a blanket commission to a buyer’s agent when they put their home on the market. But that will no longer be allowed starting this weekend, when several changes to U.S. real estate practices go into effect.
A home buyer can still try to negotiate such an offer from the seller, but if they refuse, then the home buyer would be on the hook for the cost of their agent’s services.
The National Association of Realtors supports the policy changes resulting from its $418 million settlement earlier this year of federal class-action lawsuits alleging that American homeowners were being charged artificially high real estate agent commissions when they sold their homes.
Companies behind several major brokerage brands, including Keller WilliamsReal estate everywhere, HomeServices of AmericaRe/Max and Red finalso agreed to pay millions and make policy changes to prevent lawsuits from home sellers.
The new rules, which go into effect nationwide on Saturday, apply to brokers and agents who represent clients who want to buy or sell a home advertised on a Multiple Listing Service (MLS) affiliated with the NAR.
They boil down to two major changes: General offers of compensation on behalf of sellers to buyers’ agents will no longer be included in listings posted on the MLS, although they can still be made through other means. And homebuyers will be required to sign detailed representation agreements when they hire an agent.
It remains to be seen whether the policy change will lead to lower brokerage commissions or whether fewer sellers will choose not to cover the buyer’s brokerage costs.
But the changes will likely have the biggest impact on homebuyers, especially first-time homebuyers. already confronted increased mortgage rates, a shortage of homes on the market and record high house prices. They now have to consider the cost of hiring a real estate agent if a seller is unwilling to pay them.
“This is going to negatively impact a buyer’s ability to purchase a home, and so there are going to be some pretty large-scale changes to the buying process,” said Bret Weinstein, CEO of Guide Real Estate, a Denver brokerage.
Homebuyers who want to work with a real estate agent must sign an agreement up front that outlines the services the agent will provide and how much they will be paid. It should also specify whether the commission will be split with the seller’s agent.
Typically, an agent representing a buyer will receive about 2.5%-3% commission based on the purchase price of the home. Agents then share a portion of their commission with their brokerage.
Similar buyer representation agreements are already required in about 20 states. The new rules, however, require that buyer representation agreements be completed before an agent begins working on a client’s behalf. That includes before the agent takes a buyer to see a home, either in person or virtually. A buyer can still attend an open house without signing a representation agreement.
“The big change now is that we have to ask the buyer to commit to us early and hire us early in the process,” said Andrea Ratcliff, a Redfin agent in Indianapolis, where the policy changes went into effect July 1.
One home seeker she spoke to was put off by the changes and the prospect of having to pay an estate agent’s fees, she said.
“They were absolutely not willing to commit to me — they were not willing to commit to an agent because they were not willing to bear that cost,” Ratcliff said.
Traditionally, a buyer’s agent’s commission is paid by the seller. Agents who work with homeowners to market and sell their homes list the property on an MLS and state how much their client is offering to pay a buyer’s agent, a practice known as a “cooperative compensation offer.” This is when a seller agrees up front to offer a commission on the sale of their home, which is split between their agent and the buyer’s representative, usually around 2.5%-3% per person.
The home sellers responsible for the lawsuits against NAR and others argued that the sellers had no choice but to offer to pay the buyer’s agent’s fee to ensure that their homes were shown to as many potential buyers as possible.
To address this, homes listed on an MLS will no longer include a seller’s offer to cover the cost of a buyer’s agent’s services. However, they may still advertise them virtually anywhere else, including on the agent’s own website, a display at an open house, or when communicating directly with an agent representing a potential homebuyer.
Sellers can still choose to pay a buyer’s agent’s compensation, but without the pressure of a public, blanket bid on the MLS. Some choose to pocket the savings and cover only their own agent’s commission.
“If there’s not a clear offer of cooperative compensation from the seller through their agent to the buyer’s agent, then yes, that will be part of the negotiation,” said Kevin Sears, president of the National Association of Realtors. “I think that’s something that we’ll see change in the marketplace.”
How the policy changes in the sector impact buyers and sellers will largely depend on the local housing market situation.
In a slow housing market where homes are taking longer to sell and sellers are having to lower their prices, it is more likely that a buyer can negotiate with the seller to cover their agent’s commission. In a hotter market where homes are selling quickly and getting multiple offers, sellers have the leverage to accept an offer from a buyer who does not ask to cover their agent’s fees.
While Sales of previously occupied US homes have taken a dip Since 2022, years of underwriting and other factors have kept the inventory of homes for sale at near-historic lows, driving up prices and fueling multiple offers on many homes, giving sellers a clear edge in most markets.
Still, agents say sellers should continue to pay the buyer’s commission.
“We have advised that it would be wise for sellers to remain open to covering some or all of the buyer’s costs because the last thing you want to do when you’re selling something is make it complicated for someone to buy it or limit the number of people who can buy it,” said Alex McEwen, associate broker at Selling Utah in Orem, Utah.
As for home buyers, they will need to consider the possibility that a seller will not cover their agent’s fees. Those who cannot afford to do so may need to make an arrangement with their agent to only pursue offers where the seller offers the buyer’s agent a fee.
It is unclear whether the policy changes will encourage sellers or buyers to negotiate lower broker commissions, and whether they will be successful.
Buyer agent commissions are down slightly this year, with the average buyer agent commission nationwide falling from 2.62% at the start of the year to 2.55% through July 14, according to a Redfin analysis. But as home prices have continued to rise this year, the average commission paid to a buyer agent in dollar terms has risen about 1.7% since January to $15,377.
Stephen Brobeck, senior fellow at the Consumer Federation of America, expects more sellers will be encouraged to negotiate with their agents for at least a half-percentage point reduction in their commission.
“That represents, over the course of a year in the housing market, a very large amount of money,” he said.