House hunters will have to sign an agreement with their real estate agents before they start viewing homes due to sweeping regulatory changes.
The home buying process was forced to be overhauled by a $418 million ruling that found home sellers had been consistently overcharged by brokers.
The National Association of Realtors (NAR), which has 1.5 million members, has ended the practice of the seller’s agent offering commissions to the buyer’s broker. The problem was that buyers were being directed to homes that earned their agent higher fees.
The new rules mean home buyers and their brokers must sit down together to agree on the amount before they start buying a home. They will take effect on August 17.
However, experts believe these changes will likely cost buyers. Until now, buyers didn’t have to pay fees to their broker – but that’s changing now.
The National Association of Realtors (NAR) – which has 1.5 million members – also agreed to ban the practice of the seller’s agent offering commissions to the buyer through Multiple Listing Services (MLS) . Pictured: NAR President: Kevin Sears
In the United States, agents charge home sellers an average commission of between 5 and 6 percent of the sale price of their property. This is more than double the average fee charged in the UK, according to investment bank Keefe, Bruyette & Woods.
Under the old system, commissions were paid entirely by the seller but, under the standards specified by the NAR, they were split half between the two brokers on both sides.
But the new rules mean a seller cannot be required to pay commission to the buyer’s agent.
Instead, the buyer will enter into a separate agreement with their agent regarding their commission.
Laura Ellis, president of residential sales at Chicago-based Baird & Warner, told Crain’s Detroit Business
One expert said buyers will likely think, “Wait a minute, I tried to save 10%, 20% down, and now you’re telling me I have to pay you 2.5%, 3% on top of that . that?’
That’s the view of Laura Ellis, president of residential sales at Chicago-based Baird & Warner.
Speaking to Crain’s Detroit Business, she added: “All the surveys we’ve seen indicate that buyers don’t object to the broker getting paid.”
“They just want to know what they’re paying for.”
Missouri home sellers sued the NAR in a landmark case that paved the way for several counterfeit lawsuits.
The case centered on a common practice in which seller’s agents indicated the commission their client was willing to pay on a multiple listing service (MLS).
In theory, the old system allowed agents to “steer” buyers to homes with a higher commission so they could profit more from the sale.
In the US, agents charge home sellers an average commission of between 5 and 6% of the sale price of their property, more than double the average fee charged in the UK, for example.
According to a survey by consulting firm 1000watt, more than 76% of 640 real estate agents in the United States said buyers’ agents would be more likely to show a property if they knew the seller was paying a higher commission.
But after a settlement in the Missouri case was preliminarily approved by U.S. District Judge Stephen R. Bough, the NAR made several changes.
On its website, the professional body says agents are required to “work with buyers” to obtain a signed agreement before “viewing a home”.
The agreements must specify the services of the two agents and their expected remuneration.
A listing submitted by a seller’s agent cannot specify the amount of commission to be paid to the buyer’s agent and cannot require that the buyer’s agent’s commission be paid by the seller.
On its website, the NAR states that agents are required to “work with buyers” to obtain a signed agreement before “viewing a home.”
The buyer’s agent can see which properties have the best sales commission and “steer” buyers towards them. More than 76% of real estate agents said buyers agents would be more likely to show a property if the seller offered a higher commission.
The buyer’s agent may always – but cannot be required to – receive a portion of the commission paid by the seller to the seller’s agent as part of his or her compensation.
But this can only happen if this arrangement is freely negotiated on the basis of an individual transaction and with the agreement of the buyer.
One of the driving factors behind the settlement was the theory that by removing the burden of the seller’s total commission, the price would be reduced.
However, it remains to be seen whether these price reductions will materialize in practice.
This comes as the final details of NAR compensation are still being finalized.
Homeowners who have sold properties in the last seven years are now eligible for compensation, but they must submit a claim by May 9, 2025.
Eligible sellers must have listed the home on a multiple listing service (MLS) and paid a commission to a real estate brokerage.
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