Starting August 17, 2024, the real estate commission landscape is changing big time. The NAR (National Association of Realtors) settlement has shaken up how agent commissions work. Here’s what you need to know to navigate these new waters.
Big change #1: who pays for agent commissions now?
Before August 17, the seller covered the commission costs for both their agent and the buyer’s agent, usually totaling 5-6% of the home’s sale price. For a $450,000 home, that meant a commission of $22,500 to $27,000.
Under the new rules, sellers will only pay their own agent’s commission. The buyer will need to negotiate with the seller to pay, or pay their agent’s commission separately. This means the seller’s cost is potentially reduced, but buyers might face higher upfront costs.
Big change #2: written agreements for buyers
From now on, buyers must sign a written agreement with their agent before seeing any homes. This agreement will outline exactly how much the agent will be paid and make it clear that all fees are negotiable.
The agreement can specify compensation as a percentage of the sale price, a flat fee, or a fixed dollar amount. It used to be that Buyer Agents would split the commission on a home sale (e.g., 2.5% or 3% of the sale price), so the cost for the buyer could be pretty significant—in some cases, as much as the down payment itself.
The key here is clarity—everything about how the agent is paid needs to be explicitly stated, leaving no room for confusion.
Big change #3: commissions not automatically listed on MLS
Commissions for buyer’s agents will no longer be listed on Multiple Listing Services (MLS). Instead, these commissions will need to be negotiated directly between the buyer and their agent. Buyer’s agents will have to contact the seller’s agent to find out if any additional compensation is being offered.
Previously, sellers were required to disclose the commission they’d pay to buyer’s agents on the MLS. This led to concerns about “steering,” where agents might push buyers toward homes with higher commissions. The new rules aim to prevent this by making commission negotiations more transparent.
Impact on first-time homebuyers
The new commission structure might make the home buying process tougher for first-time buyers. With the seller no longer covering the buyer’s agent commission, buyers might have to pay this cost out of pocket. For a $450,000 home, this could mean an extra $4,500 to $13,500 in costs—on top of down payments and closing costs.
Without an agent, first-time buyers might struggle with overpaying, negotiating, and accessing the best inventory. It’s possible some buyers may choose to go without an agent to avoid these fees, but this could lead to missed opportunities and higher costs.
Budgeting for agent commissions
Buyers may need to adjust their budgets to include their agent’s commission. Traditionally around 3% should be saved, although this rate might decrease from 3-1% under the new rules.
Buyer’s market vs. seller’s market: how commission negotiations vary
In a buyer’s market, where there are more homes than buyers, you might have more leverage to negotiate with sellers to cover the buyer’s agent commission. Conversely, in a seller’s market with high demand and fewer homes, sellers may not need to offer such concessions, leaving buyers to cover the commission.
Negotiating written agreements
The written agreements between buyers and agents are fully negotiable. If you’re unsure about committing long-term, you can negotiate a shorter contract, even one that lasts just a day or two, to see a few homes before making a longer commitment.
So, what should you expect?
The honest answer is: right now, we don’t know. This is the biggest change to the way houses are bought and solid in the U.S. in the last 50 or so years, and the real economic implications of this change aren’t clear just yet. It means a lot of buyer’s agents will make a lot less money than they did before and many will likely have to change jobs or focus their time elsewhere. Buyer agents used to be able to provide a lot of help and support to first time home buyers—and they might not be able to afford this kind of support in the future (they’ll need to take on 2 or 3x as many clients). There’ll be more incentive to push people to buy faster, see fewer homes, and negotiate less, and this will have a huge impact on overall affordability.
At the same time: people struggle enough already just to be able to cover the down payment and closing costs on a home. Where a month ago you could buy a $250,000 home with $15,000 saved up, now you’d need to have $22,500 for the same house. We’re pretty upset about this decision, to be honest—here’s what our CEO said about it to MarketWatch.
So, while we all wait to see what happens in the coming years, try to stay informed, be proactive, and adjust your home buying strategy to fit these new rules. While the shift might seem overwhelming, staying ahead of the curve can turn these challenges into opportunities.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.