Major changes will go into effect this month that will mean sweeping changes to how many Americans buy or sell a home, and could ultimately lower housing prices.
Starting Aug. 17, agents who list real estate in the most widely used realtor database will not be able to make payments to buyers’ agents.
That means the power to negotiate real estate commissions will come from agents on behalf of buyers and sellers.
It also means that sellers will no longer have to pay commissions for all the real sellers involved in the business – a fee that usually amounts to 5% to 6% of the sale price. local. The seller’s agent usually shared about half of that commission with the buyer’s agent.
Instead, buyers will have the right to negotiate separately about their agent’s salary and get a signed contract confirming the terms – all before visiting any property for sale.
“Under the old system, if you were a buyer and you had an agent, you didn’t get a say in what your agent got paid, unless your agent agreed to buy some of it in your price,” said Venable LLP partner. Jill Rowe, who represents sellers and real estate owners.
These new terms are very common because they apply to properties listed on Multiple Listing Services (MLSs), databases managed by the National Association of Realtors that host more than 90% of US home sales.
These changes are designed to eliminate conflicts of interest in the real estate industry and make the process easier for consumers.
They could lower real estate commissions and house prices, some said, while turning the real estate services business into more of an à la carte industry.
The new rules came about as a result of a class action lawsuit from real estate agents who argued that the old structure for dividing fees was unfair.
The crux of their argument was that the old structure artificially set commission rates and encouraged agents to take clients to households that paid higher commissions. That pushed up local prices.
The new rules were agreed to as part of a $418 million settlement with the National Association of Realtors and several major real estate firms last March, the first in a series of similar cases in of the case.
Here’s a look at what buyers and sellers need to know now:
‘What kind of commission do I pay?’
It will take some homework and patience to understand your rights and obligations under the new system and to benefit from the new arrangement.
“The big change,” according to Rowe, is that agents who list homes for sellers in the MLS database won’t be able to pass on payments to buyers’ agents — as has been the practice for decades.
Another important change is that agents who represent buyers will no longer be allowed to take a prospective buyer to see any property without first obtaining written approval of those fees and commissions. the customer will have to pay them.
All these details are negotiable by the customer. The contract must specify whether the agent’s compensation will be calculated as a minimum fee, as a percentage of the price of the house, as an hourly rate, or otherwise.
And under no circumstances can the agent’s commission be opened or ordered by the seller’s agent.
Additionally, agents must disclose that their commissions are fully negotiable and not mandated by law.
“If I were a real estate buyer or seller right now, what I would say to my realtor is: What kind of commission am I paying?” Rowe said. “What do I get for that? And what would I get if I had a low 1% commission, or a low 2% commission?”
Jennifer Stevenson, New York State Realtor and NAR regional vice president, said in the past agents could use listings to provide compensation to other sellers’ agents and to cooperating sellers.
“Now we can’t do that anymore,” Stevenson said.
He noted that buyers and sellers were always allowed to negotiate commissions with agents and that under the new rules listing agents will still be allowed to negotiate commission splits, but only outside the MLS.
A ‘different value proposition’
The main effect of the real estate industry is not yet known, although some expect that the commissions, even the prices of the home will fall.
At the very least, it’s expected to put more power in the hands of consumers, especially those who already use real estate platforms like Zillow ( Z ), Redfin ( RDFN ), Realtor.com, and Trulia, to find homes and Home listings entered into the MLS. databases.
These platforms were already disrupting the real estate industry by allowing sellers and buyers to accurately search for information only used by the MLSs provided.
“You can just go online, and you can see everything that’s available… what the price is, all the different terms, look around, and see pictures of what what they look like,” Rowe said.
That technology has greatly reduced the time that agents, especially customer representatives, spend on behalf of their clients.
“A lot of times, buyers find something online and say, ‘I want to look at that,’ and they go to an open house, or they have their agent call the seller’s agent and schedule a showing,” Rowe said. .
“So it’s a different value proposition.”
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis to X @alexiskweed.
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