The real estate market has always been a dynamic environment, constantly influenced by economic conditions, consumer behaviors, and regulatory changes. Now, there is an added wrinkle in the aftermath of National Association of Realtors (NAR) settlement that stemmed from the Sitzer-Burnett verdict. How buyer's agents get paid has changed as of August 17th, 2024. These changes, aimed at increasing transparency and fairness, could significantly impact both home buyers and sellers. Let’s dive into what these changes entail and how they might affect your next real estate transaction.
What are the NAR Commission Changes?
Historically, in most real estate transactions, the seller has been responsible for paying the commission for both their own agent and the buyer's agent. This commission is usually a percentage of the home's sale price and is split between the two agents. The buyer, on the other hand, typically doesn’t pay directly for their agent's services, even though the cost is indirectly factored into the home's price. There are some instances where a buyer agency agreement may indicate how much a buyer agent is entitled to and in the event that the seller is not paying that full amount, a buyer may negotiate that difference with the seller or pay that out of pocket to their agent. This is rare but foreshadows what's to come.
The Sitzer-Burnett verdict placed a spotlight on the traditional commission structure and demanded greater transparency and uncoupling the buyer's agent commission from the seller's. This change means that buyers will need to negotiate and pay their agent’s commission directly, instead of it being included in the overall home sale price. No longer will listings be able to show a cooperating commission for the buyer's agent. While compensation may still be offered by the seller, it will not be advertised on the MLS where listings are syndicated.
How These Changes Affect Home Buyers
1. Increased Transparency One of the main benefits for buyers is the potential for increased transparency. Currently, many buyers are unaware of how much their agent is being paid or that the seller is covering this cost. By separating these commissions, buyers have a better understanding of the services they are paying for and may have the option to pay either a flat fee for certain services, pay by the hour, or continue to pay a percentage of the sales price.
2. Out-of-Pocket Costs On the flip side, buyers may now face increased out-of-pocket expenses for their agent’s commission. This could be a financial challenge, especially for first-time buyers or those with limited cash reserves. This will certainly make buyers and prospective buyers more discerning in who they choose to work with. It's also possible some agents may try to undercut the competition and charge less for their services in order to obtain new buyer clients.
3. Leverage in Negotiations With the burden of paying commissions more transparent, buyers may have more leverage in negotiations. For instance, a buyer could offer a lower price, knowing that they’ll have to pay their agent’s commission separately, which might lead to more balanced deals. It's unclear though if this will cause any drop in values. My sense is no as we still remain in a strong seller's market with limited inventory and bidding wars still remain.
How These Changes Affect Home Sellers
1. Pricing Strategy Sellers may need to rethink their pricing strategies. If buyers are now responsible for their agent’s commission, sellers might feel pressure to lower their asking prices to make their homes more attractive. Buyers may also think this price should automatically be deducted from the value based on comparable sales that included buyer agent commissions. This could be especially true in a competitive market where buyers are more cost-conscious.
2. Market Dynamics The real estate market could see a shift in dynamics, particularly in how properties are marketed. Sellers might now need to emphasize their willingness to negotiate on price, as buyers will be more aware of their own out-of-pocket costs.
3. Potential Savings On the plus side, sellers might save money by not having to cover the buyer’s agent commission. This could allow for more flexibility in their budget, which they could use for other selling expenses like staging, renovations, or even offering concessions to buyers.
The Broader Impact on the Real Estate Market
These proposed changes could lead to a more transparent and competitive real estate market but it may also make the American dream of homeownership that much more unattainable. Buyer agents will need to demonstrate their value in justifying their commissions more clearly, possibly leading to better service or more tailored offerings. This may range from an a la carte menu to working by the hour or per showing. This may pave the way for new models we have yet to see. Meanwhile, sellers could benefit from a clearer understanding of where their money is going and might find more creative ways to market their properties with more money in their pocket.
However, the transition could also introduce new challenges. Buyers might be deterred by the prospect of additional upfront costs, leading to slower transactions or a cooling market, at least in the short term. We may also find some buyers who decide to work directly with seller agents to avoid having to pay a commission. But be careful, not having representation can work against you! Real estate agents will need to adapt quickly for sure, finding new ways to demonstrate their value to clients who are going to be looking for ways to cut costs where possible.
The Big Picture
These significant changes are going to re-shape the real estate landscape, with potential benefits and challenges for both buyers and sellers. For buyers, the key will be understanding the true costs of their home purchase and budgeting accordingly. Sellers, on the other hand, will need to stay flexible and consider how these changes might influence buyer behavior. As with any shift in the market, the best approach is to stay informed, consult with your real estate professional, and be prepared to adapt your strategies to the evolving landscape.
Whether you’re buying or selling, these changes underscore the importance of working with a knowledgeable and transparent professional who can guide you through the complexities of the real estate market. I think we are going to see agents get creative in the ways they get paid while promoting the best interests of their clients. If you have questions about how this may impact you, or want to find out more information reach out to me at (301) 461-7613 or zach@jasonmartingroup.com
Posted by Zach Lipson on
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