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Sweeping changes have arrived for residential real estate in Colorado

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A landmark settlement in a lawsuit against the National Association of Realtors could transform how homes are bought and sold starting on Saturday, potentially lowering commission costs and providing greater transparency.

But it could also complicate home purchases for first-time buyers and shake up the real estate brokerage industry.

“This is an opportunity for us to adjust and adapt. In this day and age, so many people are seeking out transparency, and this change in practices gives us that,” said Natalie Davis, a Realtor with Keller Williams Realty Downtown in Denver.

Although buyers and sellers alike could always negotiate terms, including the commission rate, with their agents, industry practice settled into a pattern where sellers paid commission costs in the 5% to 6% range for both sides of a transaction.

Home sellers in Missouri sued to end the practice, which they argued wasn’t fair and had them paying more out of pocket than necessary. The National Association of Realtors settled the case in March for $418 million and agreed to change some of its long-standing practices effective Aug. 17.

One of the biggest changes regards the posting of what a seller would pay an agent bringing a buyer to the table on the multiple listing service or MLS, which local Realtor associations have historically owned.

Agents could see the cooperative compensation information, but consumers didn’t have easy access. So long as sellers were footing the bill, wrapping the commission costs into the sales price, which lenders would finance, it didn’t matter much.

“No longer can real estate brokers put their commissions on the MLS. But they can put that information on their own websites. That is what you are going to see more of. But that will be up to each individual brokerage,” said Tyrone Adams, CEO of the Colorado Association of Realtors.

Buyer agents can contact the listing agent directly to obtain that information when it isn’t publicly available, an added step, but not a huge one.

Separating the commission information from platforms owned by Realtors was meant to address allegations of collusion, while also providing sellers more flexibility in compensating buyer agents.

“Sellers will need to be aware that by not offering compensation, they may diminish the buyer pool. It is the buyer’s choice, not the Realtor’s choice,” said Kelly Moye, a Realtor based in Northglenn.

Steering, or the practice of agents avoiding listings that are less favorable to them, is still prohibited. But it isn’t against the law for buyers to set such conditions.

That is where the tug of war will happen. A buyer who doesn’t have the extra money to cover their agent’s commission may want to limit the listings they consider to only those where the seller has agreed to pay.

But the starter-home market is also where homes sell the fastest and with multiple offers.

Even when the seller is willing to pay a buyer’s agent, showing up with a commission request below the competition could save a seller money and push an offer to the top, said Holden Lewis, a home and mortgage expert with Nerd Wallet in a blog post.

By negotiating on the front end with their agent, buyers can improve their chances when it comes to securing a purchase.

Agents will want to get paid — either by the seller or the buyer — and contracts will state that. But if the buyer is strapped, which is often the case with first-time buyers, they should try to negotiate terms.

“The contract will state how much you will pay the agent representing you either in a flat fee or a percentage of the purchase price, both of which are open to negotiation. Other elements up for negotiation include duration of the contract and geographic area (one or more addresses, zip codes, cities, and counties) for the scope of your search,” Holden said.

The settlement requires buyer agent agreements, which Colorado has long required.  Even standardized contracts leave room for negotiating. If an agent isn’t willing to budge or can’t seem to justify what they are asking for in compensation, consumers are encouraged to look elsewhere.

“As to the regular contract with a financial obligation to compensate the buyer agent, they should not sign this agreement unless they’ve read and understood it and it’s fair to them,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America.

Buyers should request a copy of the agent contract and review it closely before signing, avoiding agents who don’t provide an advanced copy. Buyers should always weigh the services they will receive against the costs.

“We suggest they aim at the dollar equivalent of 2% or less of the sale price,” Brobeck said.

The average buy-side commission paid on a home purchased in Denver was 2.56% in July, down from 2.64% in January, according to a study from Seattle brokerage Redfin. Denver had the 18th highest commission of the 50 metro areas that Redfin examined.

Home tours a sticking point

Most listing agreements don’t allow a buyer to show up and tour a home on their own, aside from an open house. Part of that is to protect sellers, who typically leave when a showing is held and who don’t want strangers walking through their personal space unaccompanied.

The National Association of Realtors, as part of its proposed settlement, is requiring that brokers sign a “touring” or “showing” agreement before taking a potential buyer through a property. It isn’t a full-blown buyer-agent agreement, but will likely discuss compensation should the person touring decide to buy a home.

“The idea is to provide transparency to the buyer regarding compensation and where it will come from,” Moye said.

The Colorado Real Estate Commission, however, argues that showing agreements aren’t required by state law and are part of licensed brokerage duties, said Marcia Waters, director of the Colorado Division of Real Estate.

“That isn’t a consumer-friendly practice and if someone wants to see a property, they shouldn’t be forced to sign an agreement,” Waters said, adding the commission has told the Colorado Association of Realtors as much in a letter.

The Real Estate Commission provides many standardized forms the industry uses, but hasn’t created touring agreements and doesn’t plan to, Waters said.

“If brokers are using touring agreements, they have to hire a licensed Colorado attorney to draft those,” she  warned.

A tougher time for first-timers

Current homeowners who are trading up will typically have enough equity in their homes to cover the cost of an agent. They are also less likely to need hand-holding and can take on more tasks themselves. More concern is focused on first-time buyers.

“First-time buyers are those who need the agent the most. They are also the least likely to be able to afford their buyer agent compensation,” said Lindsey Benton, broker/owner of Live.Laugh.Denver. Real Estate Group.

Downpayment and closing costs are already a burden for many first-time buyers and covering agent fees will add to the upfront expenses that lenders still haven’t figured out how to roll into a mortgage. First-time buyers are also the most vulnerable if they try to go it alone.

The changes could revive less common practices, such as transaction brokers, who behave as arbitrators for both sides rather than fiduciaries for one side or the other, or using an attorney to draft a legally binding contract or buyer self-representation.

New technology-focused alternatives are already arriving. On the same day the NAR changes took effect, San Francisco startup Shay, which describes itself as the “first self-representation” platform for homebuyers, launched.

The tagline on its homepage is: “Buy a home without a realtor. Save $1000s.”

“Paying a real estate agent a fixed percent of a home transaction is simply a bad deal for many homebuyers. We enable homebuyers to save money by doing it themselves. This is similar to how TurboTax gives tax filers an alternative to accountants or Expedia gives travelers an alternative to travel agents,” said Peter Jeffrey, the company’s CEO and founder in a news release.

The platform offers more than 20 guides to help buyers with each step of a transaction and claims its AI models can generate offers, assist with negotiations and review agreements.

Adams counters that purchasing a home is the most complex transaction most consumers will ever undertake and having a trained professional assisting comes with important benefits.

“People will have more conversations about these things and understand what it means for them. That isn’t a bad thing,” he said.

Originally Published: August 17, 2024 at 6:00 a.m.



This article was originally published by a www.denverpost.com . Read the Original article here. .

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Maryland guide to negotiating as real estate rules change

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Buying or selling real estate is perhaps the most complex transaction you’ll ever make.

That’s the cautionary adage some Maryland realtors tell prospective buyers and sellers. Hire us, they say, and we’ll advocate for you until the keys change hands.

How agents are compensated for that time and effort is the central focus of several changes coming Saturday to the National Association of Realtors. While denying any wrongdoing, the trade organization agreed to a sweeping overhaul of how it operates to settle a class-action lawsuit that alleged its policies and practices had artificially inflated commissions at the expense of sellers.

The settlement agreement ends the practice of posting compensation offers alongside properties on multiple listing services, and realtors must also sign a written compensation agreement with buyers before touring a home.

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Maryland has a law on the books requiring buyer agreements that disclose the specific amount or rate of compensation the real estate broker will receive. Even as realtor associations in the state say their fees have always been negotiable, the settlement has attracted fresh attention to the practice.

Here’s what Marylanders need to know.

Agent commissions add up

Agents representing both buyers and sellers have traditionally split a commission of 5-6% of the sales price, often paid by the seller. The Maryland Association of Realtors estimated the median sales price for a Maryland home was $430,000 in May, putting compensation around $21,000-$25,000 to be split between buyer and seller agents.

Some agents are concerned the policy changes will put more pressure on homebuyers to come up with financing for commissions, said Sarah Rayne, CEO of the Howard County Association of Realtors.

A home listed for sale on Multiple Listing Services will no longer include a blanket offer of “cooperative compensation,” in which the seller pays for a buyer agent’s commission. Buyers can still ask sellers during negotiations to pay for their agent’s fees.

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The practice of sellers’ agents splitting a commission with the buyers’ agents is known as cooperative compensation. The settlement agreement changes the way properties are advertised to no longer include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property.

“They’re already kind of struggling to come up with a down payment, closing costs, all that money that you need to bring to the table in order to buy your first home,” Rayne said.

Rayne said first-time homebuyers are getting priced out of Howard County, a hot market where some starter homes are listed around $500,000 to $600,000. The lack of affordable inventory can contribute to a lot of competition for listings, she said.

If buyers are concerned about affording an agent, they may go into a transaction alone. They may have cost savings upfront, Rayne said, but they won’t have an advocate heading into financial negotiations later.

“They need somebody there who can help them work through this process,” she said.

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Figure out what you need

Not everyone is going to need an agent. That’s one of the tips Joanne Cleaver, a former real estate journalist and author of a book on negotiating realtor commissions, has learned over the years. The writer runs a Facebook group for buyers and sellers centered on negotiating how agents represent them.

For example, some property transactions require the help of a real estate attorney. If the attorney can handle the negotiations and transaction, perhaps an agent isn’t necessary, Cleaver said. Retaining a real estate lawyer could cost less than an agent commission in some cases.

First-time homebuyers or people searching for property in another state may prefer to work with an agent who has knowledge of a region or specific expertise. Experienced buyers and sellers also shouldn’t assume they can go it alone, Cleaver said.

That’s why it’s crucial for buyers to do research before hiring an agent.

“This is not ‘House Hunters,’” Cleaver said. People may think they need to move fast, but she cautions against signing a contract with an agent out of eagerness to buy a house.

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Sellers can also reduce the cost of commissions. Cleaver likes to ask agents what work they do beyond listing the home. Could some of that work, such as organizing an open house, be handled by the seller, Cleaver said.

When Cleaver was selling a home in Michigan, she found a discount agent who agreed to a flat fee of about $900 in exchange for listing the home. She reused old listing photos, wrote up the home description herself and timed the listing to go live on a Friday in hopes of catching the weekend house hunting crowd.

Within hours, Cleaver said, the agent forwarded an inquiry that resulted in an offer by the end of the day.

If an agent balks at a buyer or seller’s request to negotiate, Cleaver recommends not hiring them.

“Agents are really in a moment where they need to prove their value,” she said.

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Talk to more than one agent

Buyers and sellers should interview several agents before signing an agreement, said Cheryl Abrams Davis, president-elect of the Maryland Association of Realtors. The organization represents about 28,000 realtors.

“This is like anything else that you do in life when you go to a doctor or hire a tax preparer,” she said. “Those same questions you’re going to ask of them, you’re going to ask of your realtor.”

Abrams Davis recommends asking realtors about their negotiating experience, how long they have been in business, how many buyers they have worked with and how many houses they’ve sold. Reviews from other clients are important too, she said.

“The beauty of this process is that there are various options” for agent financing, Abrams Davis said. Some agents ask for a flat fee, and others set a percentage rate of the sales price.

The Maryland Association of Realtors puts out its own list of recommended questions for first-time homebuyers in choosing an agent. Association leadership said agent compensation must be specific, such as a percentage of sales price, a flat dollar amount or a combination of both. It cannot be open-ended.

“We are all about making sure there’s transparency about the process for all Marylanders and anyone moving into our state,” she said.





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New rules shake up real estate market starting Saturday: ‘We’ll see how this goes’

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HOUSTON, Texas (KTRK) — Realtors are bracing for the biggest shakeup to their business in decades. Starting Saturday, Aug. 17, their commission structure will change.

The new rules result from a settlement announced in March by the National Association of Realtors. They eliminate the long-standing 6% commission sellers pay, which could potentially lower home prices.

Before this settlement, the industry was essentially setting commission rates.

A seller’s agent typically charges the seller 6% and shares the fee with the buyer’s agent.

Starting Saturday, sellers won’t be expected to make commission offers to buyer agents. That gives them the potential to pocket more money from selling their property.

RELATED STORY: Biggest shakeup in a century set to hit real estate agents this week

Starting August 17, new rules will roll out that overhaul the way Realtors get paid to help people buy and sell their homes.

It also means home buyers will ultimately be responsible for compensating their agent.

“We’ll see how this goes,” Tricia Turner with Tricia Turner Properties said. “Right now, buyers don’t have extra money. They have to come up with their closing costs and downpayment. To stick another fee on top of that is definitely going to change things. I will tell you, homeowners already are saying, ‘No. I don’t want to pay that buyer agent’s compensation.'”

Under the new rules, home buyers will also be required to sign a representation agreement with an agent before even touring a home.

For updates on this story, follow Briana Conner on Facebook, X and Instagram.

SEE ALSO: In 22 states and DC, buyers need six-figure household income to afford a typical median-priced home

A new report finds that in nearly half of US states, buyers will need a six-figure household income to afford a median-priced home in their state.

Copyright © 2024 KTRK-TV. All Rights Reserved.





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Real Estate Agent Fees And Realtor Commissions | Bankrate

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In this do-it-yourself digital age, home sellers and buyers alike might wonder if they need Realtors — or, more precisely, to pay Realtor fees. Just how crucial are these agents to a successful real estate transaction?

Well, a good agent is really pretty useful. Especially if you’re buying a home: Agents have access to information you don’t, and it takes time and expertise to research properties, find the best ones for you and put together a strong offer. But sellers see many benefits, too, especially when figuring out the best asking price. Your home will still need to be staged, listed on the market and shown, too. Here, we’ll take an in-depth look at how real estate agent fees work and what you get for the money.

One important note first: Changes to the way commissions work went into effect on August 17, as a result of a long legal battle settled by the National Association of Realtors and several major brokerages. The commission system, and how it has changed, is outlined below.

The NAR lawsuit

In October 2023, a federal jury found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions. All of the brokerages settled out of court, and as of March 15, 2024, NAR did the same.

As a result, the longstanding traditional real estate commission model — that is, sellers footing the bill for both their own agent and their buyer’s, typically totaling 5 to 6 percent of the home’s sale price — is upended. Now, sellers’ agents may no longer make offers of compensation to buyers’ agents on the MLS (multiple listing service, a vast database of for-sale homes accessible only to industry pros). Home sellers might no longer need to pay the agent who represents their buyer, which could open the door to much more competition among buyer-side agents, and even more potential for fee negotiation.

How much are Realtor commissions?

Let’s recap the traditional commission model, before the rule changes took effect.

Only a very small portion of Realtors work on salary — working on commission is much more common. For years, the typical going rate was 6 percent, split down the middle between the buyer’s agent and seller’s agent. But it began to fluctuate with the advent of discount brokers and the rise of online, publicly accessible listings.

Of course, real estate commissions can be negotiated, and nowadays they typically run somewhere closer to 5 percent of a home’s sale price. That means the means the more expensive the home, the more money the agents make. The exact terms of an agent’s commission vary from sale to sale, and can depend on the region and which firm they work for.

Let’s look at an example. A 5 percent commission on a $250,000 home sale would come to $12,500. But on a $1M sale, a commission at the same rate would come to $50,000.

Assuming a 5 percent total commission under that model, here’s roughly what sellers could expect to pay based on the price their home sells for:

Home’s sale price
Seller’s agent commission (2.5%)
Buyer’s agent commission (2.5%)
Total commission (5%)

$250,000
$6,250
$6,250
$12,500

$500,000
$12,500
$12,500
$25,000

$750,000
$18,750
$18,750
$37,500

$1,000,000
$25,000
$25,000
$50,000

Seller vs. buyer commission

Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee after the transaction closes. If it’s an “exclusive right to sell” arrangement, they pay the fee even if they found the buyer on their own.

Commissions for both Realtors in the transaction have traditionally been paid by the home seller: Both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent. Now that the new rules have kicked in, that is changing.

It also changes in the case of dual agency, when one agent represents both the buyer and seller in a transaction. Laws about this vary by state; in some states, dual agency is not permitted. In this type of scenario, pay particular attention to the home appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.

As Samantha Fish, an agent with Wesely & Associates in Grass Valley, California, points out, agents are still required to act in their clients’ best interest. “It’s in our ethics; it’s in our contract,” she says. “If someone comes into my open house and they like it, but they don’t have an agent, at that point I can say, ‘let me get you an agent from my office’ so they feel like they’re being represented 100 percent as well.” Still, buyers working directly with a listing agent may have more room for negotiation because the seller may agree to a lower selling price if the agent agrees to lower their fee.

The brokerage’s cut

Real estate brokerages may get a cut of the commission as well. The brokerage RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.

“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” says Patrick Duffy, broker/owner of Duffy Realty in Miami. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”

What do real estate agent fees cover?

You might wonder, what services does this commission fee buy me? One of the biggest ways buyers benefit from working with a Realtor is gaining access to the MLS, the database Realtors use to see and list properties for sale.

The fee compensates the agent for time spent answering questions and helping you through the process. An agent is also able to utilize their skills and contacts to negotiate, find properties and take you on tours of multiple homes.

A Realtor’s fee covers a wide range of costs for sellers as well, including marketing materials, staging and showing the property, coordinating open houses and contacting agents of potential buyers. When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. A lot goes into listing a home, such as:

Creating a comparative market analysis to establish a competitive price
Arranging for photo shoots, sometimes including aerial shots via drone
Writing descriptive listing copy to attract interest from other Realtors and potential buyers
Providing staging guidance
Showing the property multiple times to prospective buyers
Hosting open houses, often on weekends
Providing yard signage
Making sure listings are populated on all major property search websites
Helping the seller review and negotiate buyer offers

As with most of the other expenses related to real estate transactions, a Realtor’s fee isn’t paid until the sale closes.

Average real estate commissions by state

Overall, the national average Realtor commission in 2023 was 5.49 percent, according to data from Clever. In all but a few states, the average commission ranged between 5 and 6 percent.

Keep in mind, though, ​​that Realtors may accept a lower commission for high-priced homes to earn a higher amount overall: Their piece of the pie may be smaller, but it’s a richer slice. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money,” Duffy says. “In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.”

Here are the average real estate commissions by state, according to Clever:

State
Average commission rate

SOURCE: Clever

Alabama
5.45%

Alaska
6.00%

Arizona
5.44%

Arkansas
5.99%

California
5.11%

Colorado
5.62%

Connecticut
5.47%

Delaware
4.88%

District of Columbia
5.49%

Florida
5.37%

Georgia
5.81%

Hawaii
4.78%

Idaho
5.50%

Illinois
5.35%

Indiana
5.56%

Iowa
5.67%

Kansas
5.58%

Kentucky
6.00%

Louisiana
5.56%

Maine
5.17%

Maryland
5.34%

Massachusetts
5.45%

Michigan
5.92%

Minnesota
5.82%

Mississippi
6.07%

Missouri
5.58%

Montana
5.50%

Nebraska
5.25%

Nevada
5.80%

New Hampshire
5.25%

New Jersey
5.21%

New Mexico
5.90%

New York
5.39%

North Carolina
5.52%

North Dakota
5.00%

Ohio
5.99%

Oklahoma
5.95%

Oregon
5.03%

Pennsylvania
5.48%

Rhode Island
5.50%

South Carolina
5.62%

South Dakota
5.49%

Tennessee
5.58%

Texas
5.73%

Utah
4.90%

Vermont
5.49%

Virginia
5.45%

Washington
5.25%

West Virginia
6.67%

Wisconsin
5.15%

Wyoming
6.00%

How to avoid paying Realtor fees

Selling your home without the help of a real estate agent — called “for sale by owner” or FSBO for short — is certainly possible. Between July 2022 and June 2023, 7 percent of home sales were sold by owners without the help of an agent, according to NAR data. But selling without an agent’s help is a lot of work to do on your own, much of it complicated.

If you don’t want to go it alone, ask agents from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it. If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage to negotiate as well.

Alternatively, you could consider working with a low-commission real estate agent, who will likely charge much less than a traditional agent would (usually 1 to 1.5 percent of your home’s sale price). However, since they’re receiving a smaller commission on each property, these agents are typically focused on volume. As a result, you might not receive as much personal attention as you would with a traditional Realtor.

There are also brokerages and agents who work on a flat-fee basis. In other words, no matter how much your home sells for, they’ll receive a set amount rather than a percentage of the sale price.

If you want to avoid Realtor fees and sell your house quickly, another option could be selling to an iBuyer or a company that buys houses for cash. Both options will allow you to finalize your home sale fast, without paying any agent commissions. But the offers from these buyers will be less than you’d likely fetch in a traditional sale, and some charge service fees that are equivalent to what you’d pay in commission anyway.

Finally, remember that even if you’re not paying Realtor fees, there are still plenty of other closing costs associated with selling your home. For instance, you may be on the hook for things like title transfer fees, attorney fees, property taxes and more. And even if you sell without an agent of your own, you may still be on the hook to pay your buyer’s agent.

FAQs

What percent commission do most real estate agents charge?

Typically, each agent involved in the transaction (one for the buyer, one for the seller) earns somewhere between 2.5 and 3 percent of the home’s sale price as their commission fee. However, the amount is negotiable — and new rules as of August 17, 2024, mean the seller may no longer be obligated to pay their buyer’s agent’s fee.

Do sellers or buyers pay fees to the real estate agent?

Traditionally, sellers have been the ones who covered real estate agent commissions — both for their own agent and for the buyer’s. That changed on August 17, 2024, as a result of the NAR lawsuit settlement. Now, buyers may (or may not) be responsible for paying their own agent directly. The details of each transaction will be different.

How much commission do you pay on a $500,000 home?

It depends on the specific terms of each agent’s commission. Commissions usually total somewhere between 5 and 6 percent of the home’s purchase price — on a $500,000 transaction, 5 percent comes out to $25,000 and 6 percent comes to $30,000.



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Will New Rules for Real Estate Commissions Lower the Cost of Selling a Home?

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Homebuyers face a changing housing market this weekend as major shifts to how real estate agents are paid take effect.

The National Association of Realtors (NAR) groundbreaking new commission-sharing agreement will end the common practice of home sellers automatically covering the fees for real estate agents on both sides of the transaction. The new rules start on Saturday.

The agreement is the result of the settlement of a series of lawsuits brought over the past few years challenging the long-held practice of splitting the sales commission between the seller and buyer agent. Plaintiffs in the legal battles, primarily home sellers who paid both agents, claimed commission sharing, also known as cooperative compensation, artificially inflated the cost of a home sale.

Although the NAR was the main defendant in several cases, other major brokerages, including Keller Williams and RE/MAX, were also named co-defendants. With the NAR settlement, however, most of these lawsuits will have been settled, clearing the way for a change in how realtor fees are negotiated.

Now, real estate agents are prohibited from advertising shared commissions on local databases, called multiple listings services (MLS), and buyers will instead have to negotiate their agent’s fees before they start viewing homes.

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How will the NAR agreement change agent commissions?

Even though these fees have always been negotiable, most homeowners entering into a listing agreement with a realtor have typically paid between 5% and 6% commission on the sales price, which was split between the agents representing the seller and buyer. The ultimate goal of the lawsuits was to reduce this percentage, thereby saving sellers money.

Since the settlement announcement in March, there has been a slight decrease in the typical percentage paid to buyers’ agents. According to a report from Redfin, the typical seller is paying the buyer’s agent a 2.55% commission through the period ending in mid-July. By comparison, the typical commission paid in January was 2.62%. The question is whether the new commission model will accelerate the decline in fees paid.

Marty Green, principal at the Texas-based law firm Polunsky, Beitel, Green, believes that once the agreement goes into effect, commission changes will remain modest — at least for now.

“It’s not likely they are going to turn a switch on August 17th, and suddenly everything’s going to be different,” Green says. The immediate effect will be more transparency between agents and their clients, emphasizing the buyer’s side of the commission discussions and whether sellers want to keep splitting commissions. Some sellers may decide to continue the practice to make their homes more attractive to buyers.

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Who benefits most from the change in how real estate agents are paid?

Although the settlement is meant to benefit all sellers and buyers, that may not be the case, according to Daniel Smith, founder of Keepingly, a home management platform. If the traditional model of commission sharing is fundamentally altered, it could simply lead to more upfront costs for buyers.

“For many consumers, particularly those with limited financial flexibility, this could make homeownership more challenging,” Smith says.

Aside from home sellers, who can decide if they want to continue footing the bill for the buyer’s agent and how much they are willing to pay, the other winners in this scenario are likely to be high-income buyers. These clients have the means to cover the costs of their own agent’s commission and may be more likely to shop around and negotiate agent fees.

On the other hand, the agreement could increase the challenges low-income and first-time buyers face in an already difficult housing market. Part of the settlement agreement includes a provision that buyers must sign a contract with their agents before touring any potential homes. That contract will likely include language that outlines how the buyer will be responsible for paying the agent’s commission if the seller decides not to.

If buyers have to pay for their agent’s representation, that cash needs to be paid upfront with the down payment and closing costs or somehow rolled into the mortgage, increasing the borrowed amount and the monthly payments along with it.

The increased cost of representation could also lead some buyers to hire an inexperienced agent or forego representation altogether, which could put them at a disadvantage when negotiating a home price or concession.

It will take time to measure exactly how much change the agreements will bring about to agent commissions. For now, it’s more important than ever that sellers and buyers understand the potential impacts of the settlement. For sellers, Green says, this means deciding whether to pay the buyer’s agent and for buyers, how to structure their offer in a way that makes financial sense.

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How new real estate rules are set to reshape home buying and selling across the U.S.

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How new real estate rules are set to reshape home buying and selling across the U.S. – CBS News

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Starting Aug. 17, new regulations will change how real estate commissions are handled, potentially lowering costs for homebuyers and sellers. Under the new rules, buyers and sellers will have the opportunity to negotiate commissions directly with their agents, a shift that could impact everyone involved in the real estate market.

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How new real estate rules will impact Minnesota Realtors, home buyers

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EDINA, Minn. — The experience of buying or selling a home is changing. A recent National Association of Realtors settlement now requires buyers and sellers to negotiate house sale commissions, including who pays and how much.

A recent overhaul changed the way realtors get paid to help people buy and sell their homes. It’s part of a $418 million settlement announced in March between a nationwide group of homeowners and the National Association of Realtors.

“For consumers, it’s going to be more transparent and it really should be a smooth process,” said Jamar Hardy, president of Minneapolis Area Realtors. “Historically, a seller’s agent charged home sellers a fee, usually 5% or 6%, which was then split with the buyer’s agent. On a $500,000 home that would be $30,000 in commission.”

Lawsuits alleged the standard practice violated antitrust laws, though the association has long argued that the commissions were always negotiable.

Moving forward, buyers who previously didn’t have to pay a commission to their realtor who helped them purchase a home will be expected to pay for the service. Sellers will have to pay for their agent but will no longer have to pay for the buyer’s agent.

Listing agents and sellers will be prohibited from including offers of compensation to buyer agents on the multiple listings services, better known as the MLS.

“If sellers aren’t offering payouts right up front, that negotiation is going to happen at a time of offer, so we’ll see a little change there because again, that offer of compensation won’t be visible to us anymore,” said Hardy.

Real estate commissions in Minneapolis have fallen minimally since March, after the announcement of the settlement. It fell from 2.6% in March to 2.56% in mid-July.

Analysts with TD Cowen expect the settlement could reduce realtor commissions by 25% to 50%. Another change requires buyers’ agents to discuss their compensation upfront.

“I think that’s going to be the biggest change for both consumers and agents. It’s not just allowing somebody to walk through that house because we have a showing, let ’em run through really quick to see things,” said Hardy.

There are 22,000 real estate agents in Minnesota. Hardy says some may leave the business because of the changes,but others will thrive.

“I think competition is going to win out in the end, and people are going to truly know what we do for a living and understand what they’re paying for,” said Hardy.

The new rule changes the National Association of Realtors agreed to as part of the settlement take effect on Saturday.

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Derek James anchors Saturday and Sunday evening newscasts and contributes stories during the week on “The 4.”



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How real estate agents get paid changes Saturday

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“If you’re a buyer, you’re likely not seeing that form,” McFall said.

Realtors aren’t the only ones paying close attention to those new forms.

Prentiss Cox, a law professor at the University of Minnesota, said it remains to be seen whether it’ll now cost less to buy and sell a home. The current commission structure, he said, has been difficult to upend in part because of what he calls persistent “collusive practices” that force buyers and sellers in the U.S. to pay 5% to 6% to sell a home, not including other fees, while the rest of the world pays roughly half that.

As of mid-July, the typical U.S. seller paid a buyer’s agent alone a 2.55% commission, according to a new Redfin analysis of MLS data. That’s down from an average of 2.62% in January. The study didn’t track commissions paid to the listing agent.

The average commission paid to a buyer’s agent in the U.S. is $15,377, up slightly from $15,124 in January. The dollar amount has increased marginally, even though the percentage has declined because of the rise in home prices.

Redfin said while it’s possible news of the NAR settlement has contributed to the recent decline by making consumers more aware they can offer any commission to a buyer’s agent or none at all, commissions were already on a gradual decline prior to the settlement. Through the past decade, the average buyer’s agent commission fell from 2.89% in 2013 to 2.66% in 2023.



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Real Estate Commission Changes Are Here For Buyers, Sellers | Bankrate

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The National Association of Realtors (NAR) agreed to new rules around real estate commissions as part of a lawsuit settlement in March. As of August 17, they’re actually rolling out — and consumers face a deluge of confusion and conflicting predictions.

One narrative predicts a coming utopia for homebuyers: A price war will erupt, and commissions will plunge amid a new wave of competition among buyers’ agents. A competing narrative goes in the opposite direction: Under the new commission structure, buyers will realize they’re on the hook for thousands and decide not to use agents at all. NAR, meanwhile, has portrayed the changes as minor tweaks rather than a major shift.

The opposing narratives underscore just how complex Realtor compensation has always been — and how much more complex it just got. Here’s a look at the new commission structure and what it could mean for both homebuyers and sellers.

How real estate commissions used to work

Traditionally, when a home seller hired a real estate agent to represent their listing, the seller agreed to pay a commission. The national average has been about 5 percent of the home’s sale price, typically split down the middle with 2.5 percent going to the listing agent and the other 2.5 percent to the buyer’s agent. (On a $400,000 home, 5 percent comes to $20,000, or $10,000 for each agent.)

Who pays?

Even this has been a bit murky. Agent fees came out of the seller’s proceeds at closing, but it’s reasonable to assume that the seller adjusted their price accordingly — the fees were baked into the home’s sale price. And so the buyer ultimately paid, just not directly to the agents: That extra 5 percent was rolled into the home’s sale price.

What’s changing?

The biggest change is that listing agents (the agents who represent home sellers) may no longer make offers of compensation to buy-side agents on any NAR-affiliated multiple listing service (MLS). In addition, a buyer’s agent must now have a written contract with a home shopper, clearly specifying their fee, before they may show that client a house. Until now, NAR encouraged but didn’t require written agreements between buy-side agents and buyers.

A federal judge gave preliminary approval to the settlement in April 2024, and the final holdout among the brokerages named in the suit — HomeServices of America, part of Warren Buffett’s Berkshire Hathaway — also settled in April. While final court approval is not expected until November, the rules took effect August 17.

Compared to the old model, the new version offers a greater level of transparency for consumers — homebuyers now will be fully aware of how much they’re paying for an agent’s services. “It’s always good when people understand what they are and are not paying for,” says David Druey, Florida regional president at Centennial Bank.

An important aspect of the new model for agents: While the new rules prevent listing agents from posting buy-side commissions on the MLS, as they used to, sellers and listing agents still can agree on the amount off the MLS. That means it’s OK to offer compensation amounts verbally, in emails or texts, and even on their brokerage’s own website, as long as it’s not done on the MLS.

“Although sellers can elect not to pay any buyer agent compensation, that doesn’t mean they will avoid the economics,” says Budge Huskey, president and chief executive of Premier Sotheby’s International Realty in Naples, Florida. “Buyers may easily write into any offer a contingency requiring that the seller cover the cost, or may request other concessions, such as closing cost assistance in the dollar amount they are paying their representative.”

Does this mean real estate commissions are now negotiable?

Technically, real estate commissions always have been negotiable — a theme NAR long has stressed. Practically, though, the picture gets complicated. In many cases, Realtors are more skilled at negotiating than their clients, so the consumer comes into the negotiation at a disadvantage. What’s more, the buyer’s agent commission was previously determined by the seller, not by the buyer. The new rules shift that responsibility to buyers, who now will discuss compensation directly with the agents representing them.

Is this good or bad for consumers?

Until we see how things shake out over time, the answer really depends on who you ask. Some foresee a near-nirvana for consumers: Vishal Garg, CEO of mortgage company Better, predicts the settlement will unleash a “buy-side price war” — buyer agents will begin competing fiercely for clients.

Others fear a darker turn. Ken H. Johnson, a real estate economist at Florida Atlantic University and a former real estate broker, says the new rules just add another layer of complexity to an already-confusing process.

“No longer advertising buyer agent commissions will only create a more confused and drawn-out transaction process as buyers, sellers and agents will have to negotiate the fee, who will pay for it and how much will be paid by each party,” Johnson says. “Due to this added level of complexity, buyers will almost certainly have to negotiate with more sellers before they find the deal they are satisfied with. Thus, the house-hunting period will extend for the average buyer.”

Concerns for first-time buyers

Many in the real estate industry worry that first-time homebuyers — those who need expert guidance the most, and who are already severely hampered by high prices and high mortgage rates — will be priced out of professional representation. If commissions no longer come out of the seller’s proceeds, the thinking goes, buyers won’t have an additional $7,500 or $10,000 to pay an agent.

“Most of those buyers are scraping the barrel to the bottom to come up with a down payment,” says Dave Liniger, chairman and co-founder of RE/MAX. (The firm was one of the large brokerages named as defendants in the suit along with NAR; RE/MAX settled last year for $55 million.)

For now, buyers can’t roll commission costs into their mortgages under the new rules. But industry players widely expect the Federal Housing Finance Agency, overseer of mortgage giants Fannie Mae and Freddie Mac, to change those rules.

“I think there’s going to be pressure on them to allow that,” Liniger says. “The industry needs first-time buyers.”

Indeed, NAR already has been attempting to nudge the mortgage industry in that direction: “We are talking with Freddie and Fannie to see what can be done,” says Lawrence Yun, NAR’s chief economist.



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The Future Of Real Estate Commissions | Bankrate

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Real estate commissions have survived the rise of the Internet and decades of attacks from disruption-minded discounters. Now, finally, they might be coming down.

A federal lawsuit has forced changes to the way consumers negotiate and pay real estate agents. In October 2023, a federal jury in Missouri found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions. The brokerages all settled out-of-court, and in March 2024, NAR settled as well, agreeing to pay $418 million in damages and change some of their longstanding rules. (Final court approval is expected in November.) Here’s what it means for homebuyers and sellers.

How real estate commissions are changing: A ‘price war’?

As of August 17, home sellers are no longer automatically responsible for paying both their own agent and the buyer’s agent. Instead, homebuyers who want representation may have to pay their own agents separately: Under the new system that NAR agreed to in settling the suit, when a home hits the market, listing agents will no longer specify how much the buyer’s agent will be paid. Instead, that fee will be negotiated separately between the buyer and the buyer’s agent.

Next up, perhaps: Full-throated price competition among buyers’ agents. “You’re going to see a buy-side price war by next year,” says Vishal Garg, CEO of mortgage company Better.

Technically, real estate commissions have always been negotiable. Practically, though, agents are more skilled at negotiating than their clients, and commissions have clustered in the range of 5 percent. The new rules set the stage for buyer agents to aggressively market their fees. Stephen Brobeck, senior fellow at the Consumer Federation of America, expects commissions will ultimately fall below 4 percent, maybe even to 3 percent. “Over time, more agents will feel free to offer different types of compensation, and more consumers will comparison shop and negotiate commissions in a more transparent marketplace,” he said.

A new era of competition among buyer agents is coming soon, says Garg. “In the best-case scenario, consumers are going to shop around for buy-side agents in the same way they shop around for mortgage lenders,” he says.

A financing wrinkle

There are still many details to be worked out. If the buy-side agent is no longer paid from the listing commission, then that means the buyer is responsible for paying their agent directly — a sum that would average about $10,000, based on a 2.5 percent commission and a $400,000 sale price. For now, buyers aren’t allowed to roll that amount into their mortgage to be paid over time. However, it’s possible that the Federal Housing Finance Agency will change its rules to allow Fannie Mae and Freddie Mac mortgages to include commissions. Industry experts expect federal regulators to tackle that topic in the near future.

How much do commissions cost?

Under the longtime standard, if a homeowner sold a property for $400,000, about average for existing homes in the United States, the seller paid a commission of around 5 percent, amounting to $20,000. That amount was then split between the seller’s own agent and their buyer’s agent (which hardly mattered to the seller, who still had to pay the full amount regardless).

Long ago, 6 percent was the going rate for real estate commissions; 3 percent to each agent. But after decades of competition and regulatory scrutiny, the typical commission now is slightly less than 5 percent, according to data from Anywhere Real Estate, the parent of Coldwell Banker, Century 21 and other large real estate brands. In its filings with securities regulators, publicly traded Anywhere reports that its average commission “side” — half the commission — is currently about 2.4 percent.

While commissions briefly rose during the Great Recession and again in 2023, rates in general have been falling steadily for decades. For Realtors, this decline in commission rates has been offset by rising home prices: They’re getting a smaller piece of the pie in terms of their percentage-based fee, but the pie is getting bigger.

About the NAR lawsuit

In the case that went to trial in 2023, Missouri home sellers alleged antitrust violations by NAR and four major brokerages: Keller Williams, Anywhere, RE/MAX and HomeServices of America. Anywhere and RE/MAX settled before trial — paying $83.5 million and $55 million in damages, respectively — while the other defendants opted to take their chances in the courtroom.

The jury ruled against the industry, and a judge ordered NAR and the two remaining brokerage firms to pay $1.8 billion in damages to home sellers. Keller Williams eventually settled for $70 million, and HomeServices of America, part of Warren Buffett’s Berkshire Hathaway, settled for $250 million. NAR also agreed to pay up and change its practices.

Other dramas

NAR has recently faced other headwinds in addition to the antitrust lawsuit and related cases. A sexual harassment scandal led to the resignation of the organization’s then-president in 2023, and the organization’s next president and longtime CEO then stepped down as well.

All the drama has created unease and unrest in the ranks. Redfin cut ties with the trade group, requiring many of its brokers and agents to cancel their memberships, and other brokerages have followed suit. In addition, two influential real estate agents have launched a competing trade group, known as the American Real Estate Association (AREA).

One of the new group’s cofounders, Jason Haber — a broker/agent at Compass in New York City and an outspoken NAR critic — described AREA as an alternative, not a replacement. “We’re not trying to replace NAR. We’re not trying to replicate NAR,” he said. “They have a 108-year head start.”

Competition and the MLS

The residential real estate industry has long presented a dichotomy. On the one hand, it has essentially controlled the marketing of properties for sale through a nationwide network of multiple listing services (MLSs). That reality has led to grumblings about collusion and price-fixing, along with scrutiny from the U.S. Department of Justice.

On the other hand, real estate sales is a relatively easy business to get into, as evidenced by NAR’s membership rolls of more than 1.5 million agents. To earn a real estate license, an agent typically needs to take a couple of classes and pass a state exam. No college degree is required, and the costs of entry are modest. However, the settlement is expected to thin the ranks.

Lawrence Yun, NAR’s chief economist, pointed last year to these low barriers to entry as evidence that competition is alive and well: “Real estate is a perfectly competitive industry,” Yun said during the organization’s annual conference in November.

Brobeck, the consumer advocate, disagrees with that assessment. “It’s not a free market right now,” he said. “There’s intense competition for clients. But there’s no competition on rates. In a normal marketplace, you compete based on marketing, but also on the price you charge.”

Meanwhile, the industry mantra has long held that commissions are negotiable, suggesting that sellers and buyers call the shots when it comes to how much they pay agents. In practice, though, consumers buy or sell a home only once every 5 to 10 years, if that, and many aren’t knowledgeable enough about the process to successfully negotiate the rate down.

“Consumers are at a disadvantage,” Brobeck said. “They buy and sell homes infrequently, and they’re mostly concerned about sale price and timing.”

Historically, discounters have not succeeded

For decades, detractors have predicted the demise of real estate commissions. These fees were sure to go the way of stockbrokerage commissions and travel agency fees, the naysayers said. Instead, real estate commissions have proven stubbornly resilient.

It’s not for a lack of trying. Many disruptors have seen commissions as a problem to be solved, but most have fallen short of reshaping the industry.

In the early 2000s, for instance, a splashy discounter known as YourHomeDirect (and later Foxtons) offered 2 percent commissions in New York and New Jersey. But after advertising heavily and gaining market share, it ultimately collapsed.

A decade later, London-based Purplebricks pushed into the U.S., wooing sellers with a flat fee of $3,200. It, too, overestimated demand and pulled out of the U.S. market in 2019.

One high-profile discounter, Seattle-based Redfin, has achieved greater staying power. It launched as a cheaper alternative to traditional brokers and touted listing fees of just 1 percent, although it has since shifted to focusing on 1.5 percent listing fees.

How sellers can save on real estate commissions

If you’re not keen on paying agent commissions, here are some alternative options:

Go it alone: Sell your home without an agent in a “for sale by owner” transaction. Between July 2022 and June 2023, 7 percent of home sales were sold by owners without the help of an agent, according to NAR data. But selling without professional help is a lot of work to do on your own, and it technically only saves you one agent’s commission — you may still have to pay your buyer’s agent.

Negotiate: If you don’t want to go it alone, ask agents about their commission rates upfront and compare the terms of each person you talk to. If you think the fee is too high, see if they’re willing to lower it. If both agents in the transaction are from the same brokerage, you might have more leverage to negotiate.

Hire a discount agent: A low-commission real estate agent will likely charge much less than a traditional agent would — usually 1 to 1.5 percent of your home’s sale price. (However, you might not receive the personalized attention you would with a traditional Realtor.) There are also brokerages and agents who work on a flat-fee basis, earning a preset amount on the sale rather than a percentage of the sale price.

Sell to a cash-homebuying company: These companies, which often advertise “we buy houses,” pay in cash, close quickly and typically charge no fees. However, if you sell this way you’re likely to get a lower price for your home than you would with a traditional sale.



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