What the New Realtor Commission Changes Really Mean (From an Industry Insider)

There are changes on the horizon for the real estate industry.  

Most real estate agents working in the U.S. make a commission, which is a percentage fee based on the sale price of the home. 

But this compensation model has faced a lot of public scrutiny this year. Recent lawsuits claim this isn’t the most transparent way, nor is it in the best interest of the consumer.  

We will see changes happen nationwide starting in July 2024. What do you need to know? 

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How Do Real Estate Agents Get Paid? 

Real estate agents earn a commission, which is a percentage of the home’s sales price.  

The percentage ranges anywhere from 1% to 6%, with 4% to 6% being the most common. It is shared between the listing agent (the seller’s agent) and the buyer’s agent. 

For example, a 5% commission on a $500,000 home sale would be $25,000. 

This is split between the agents in varying ways depending on the local market. Commission rates are not standard; they also vary by market and the situation, and are negotiable.  

Many agents work under a firm and are also subject to commission splits internally. In return for admin and business support, an agent commits a portion of their commission from each sale to their brokerage firm. These splits vary from firm to firm (with services also varying). 

Who pays the real estate agent commission?

In a typical real estate transaction, the seller pays the entire commission.  

This means the agent fees have been included in the price of the home.  

It also means that prospective homebuyers haven’t had to pay their agents directly. (Exceptions do exist, such as in the case of homes for sale by owner).

In residential real estate, the commission payout amount is usually detailed on the home’s Multiple Listing Service (MLS) sheet — the document that contains all information on the home, including the square footage, materials, bedrooms, bathrooms, etc. 

This information is also available online now on listing sites such as Zillow and Realtor.com.  

What Was the REALTOR Settlement About? 

On March 15, 2024, a landmark case against the National Association of Realtors (NAR) was settled, to the tune of $418 million in damages.  

The case claimed that:

• NAR was setting real estate agent commissions, thus violating antitrust laws to prevent price fixing.  
• Even though commissions were said to be “negotiable,” often they were clustered around a certain figure and required to be paid by the seller if they wanted any chance of selling their home. 
• Buyers are less likely to negotiate agent fees under this scenario since they are already “included.”  
• NAR has partnerships with many MLS systems, which are in charge of real estate listing and commission data — further proving a monopoly was taking place.

The changes coming from the NAR settlement are meant to bring a more transparent way of compensating real estate agents, making it easier to negotiate fees. 

How Will This Affect Buyers and Sellers? 

Even though sellers are not required to pay the buyer’s agent commission under the current system, it is still largely factored in out of fear that fewer buyers will see the house if they don’t.  

Separating the listing (seller’s) agent commission and the buyer’s agent commission may help buyers have a better understanding of how their agent is getting compensated — and that it is entirely negotiable.  

Typically, you’ll see agent fees getting negotiated on the listing side, but rarely on the buyer’s side. However, this new language makes it clear that sellers do not have to pay the buyer’s agent and opens up more conversations about commissions. More money transparency is never a bad thing! 

However, whether or not clients will actually negotiate agent fees remains to be seen.  

It will depend on the value that an agent can bring to a client, and whether or not the client believes their agent’s fee is justified.  

Some may want to hire the best agent they can get, even if that means paying top dollar.  Others may look for a combination of value and service.  

The beauty of this is that greater transparency and knowledge will empower potential homebuyers and sellers to make the best decisions for them.  

READ MORE: What Do You Need to Know About Mortgages?

How Is the Real Estate Industry Going to Change? 

Real estate laws vary by state, so this change will be setting some national standards.  

Agency agreements

For starters, buyers will be required to sign an agency agreement that explains if the seller declines to offer a buyer’s agent compensation, the buyer will be responsible for paying their agent.  

In some states such as North Carolina (where I am licensed), this has already been the norm.  The agreement also says the buyer can be required to make up the difference if there’s a gap between what the seller is offering and what the agent charges.  

Some agents require their buyer clients to make up the difference, and others don’t, so it varies from agent to agent.

Affordability

A lot of conversation about this settlement has been about whether decreasing commissions makes homebuying more affordable. That also remains to be seen and could have some other ripple effects we may not be able to anticipate.  

Most homebuyers, especially first-time homebuyers, are already scrounging up their savings for a down payment and closing costs. Adding an agent’s commission to that, often in the 2% to 3% range, means thousands of dollars more.  

This means that a first-time homebuyer using an agent (who probably needs the guidance of an agent the most), will be able to afford less.  

READ MORE: How Much House Can I Afford?

Government programs

The settlement also disproportionately affects our veterans using a VA loan, because with these types of loans, the Veterans Affairs administration (which extends the loan) requires the seller to pay the agent commissions.  

Other government organizations such as Fannie Mae and Freddie Mac (which purchase loans from lenders) have also put out notices in response to the settlement.  

Fannie Mae says that as a result of the NAR lawsuit if a seller still decides to pay a buyer’s agent, that will not apply to the 2%-9% limit they impose on seller-paid closing costs.

Wrapping Up

These are just a few examples of how the NAR settlement will impact the real estate industry moving forward.  There are certainly other changes that, come July, will surface — but it’s impossible to know exactly when and how these will occur.  

However, no matter what happens, the more conversations we have about how real estate agents are paid will only benefit everyone involved. 

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