CHANGES TO THE REAL ESTATE INDUSTRY FOR SELLERS
In 2019, lawsuits were filed against titans in the real estate industry, alleging that the public was misled into believing brokerage compensations were non-negotiable. However, settlements were reached instead of taking the matter to court, and standard practices were agreed upon.
The Importance of Buyer Agent Commissions
Buyer agent commissions remain essential in negotiations and selling processes. A 3% commission for buyer agents is recommended because reducing or eliminating it decreases the number of potential buyers. Buyers already face significant financial pressures, and making them pay their agent could make home purchases unaffordable. Moreover, agents may steer buyers toward homes with higher commissions. As sellers, keeping buyer agent commissions helps maintain a competitive edge in the market. It ensures agents are incentivized to show the home to potential buyers, especially in competitive markets where builders offer full commissions. When it first hits the market, an overpriced home is a common seller’s mistake. However, listing an overpriced home that covers buyer agent compensation rather than a perfectly priced home with less than 3% commission is preferable.
If no commission is offered to buyer agents, several things could happen. Listing agents might have to represent both sides, compromising the service as they need to be neutral facilitators without additional compensation while increasing their liability. Buyers may also lowball their offer or request 3% more in closing cost assistance to cover the agent’s commission. Alternatively, buyers might represent themselves, which can cause issues as real estate is difficult to navigate without professional guidance.
CHANGES TO THE REAL ESTATE INDUSTRY FOR BUYERS
Historically, the standard for real estate transactions was that the listing brokerage takes a listing at 6% of the sales price, with 3% compensation to the cooperating brokerage for bringing their buyer and facilitating a successful purchase.
However, in 2019, class action lawsuits were filed against major industry players, alleging that some people perceived brokerage commissions as non-negotiable. Instead of taking it to court, settlements were made, and standard practices were agreed upon. As a result, the National Association of Realtors (NAR) cannot advertise buyer agent commissions on listings now. This means that compensation is no longer visible to buyer agents, and earning a 3% commission may no longer be the case, affecting how properties are represented and marketed.
Real Estate Changes Effect To Buyers
One key change for buyers is requiring real estate agents to sign a buyer representation agreement before viewing any property, ensuring the agent works in the buyer’s best interest. While many sellers and builders will still offer the typical 3% commission, some may offer less or none at all.
As a buyer, you have several options with these industry changes
- Ask your agent to show only properties where the seller covers the commission or pays the difference at closing.
- Pay the difference in commission at closing to ensure you have dedicated buyer representation.
- Work with a realtor who will work for a cut-rate or potentially for free.
- There could be situations where the listing agent handles both buyer and seller, acting as an intermediary.
- Go unrepresented.