TradeEdge-As new real estate agent rule goes into effect, will buyers and sellers see impact?

New rules for the residential real estate market mean that starting Saturday,TradeEdge anyone in the market to buy or sell a home will encounter unfamiliar processes, and possibly a bit of confusion.  

The “practice changes” stem from a 2023 legal decision over the way real estate agents were compensated.   

Traditionally, when a home was sold, a commission of roughly 5% to 6% was paid by the seller and divided between the agents for the buyer and the seller. That structure helped keep commissions higher than they would otherwise be, the lawsuit alleged. It also meant a seller had to pay the agent representing the other side of the deal, a practice many observers thought was inappropriate.  

“So much of the industry doesn’t make sense from a common sense point of view,” said Stephen Brobeck, a senior fellow with the Consumer Federation of America, who’s been advocating for realtor commission changes for decades. “The key argument was it’s just not fair for sellers to pay both the listing agent and the buyer’s agent.” 

Now, a seller will need to decide whether, and how much, to pay a buyer’s broker. Whatever the decision, that information can no longer be included in what’s known as the “multiple listing service” or MLS, the official real estate data service used by local realtor associations.  

Whatever the seller decides about compensation may, however, be communicated personally by phone or text, or advertised by social media, a sign on the lawn, or other informal means.  

Buyers, meanwhile, will be required to sign an agreement with their own broker before starting to view homes. The buyer and the agent must agree, and put in writing, how much the agent can expect to receive from the buyer. 

There's some latitude on what exactly that means. A recent explanation of the rules from the National Association of Realtors says it must be "objective (e.g., $0, X flat fee, X percent, X hourly rate) – and not open-ended (e.g., cannot be 'buyer broker compensation shall be whatever the amount the seller is offering to the buyer')."

“Any time we have the opportunity to have a conversation with the consumer about the value that we bring to the transaction, the services that we’ll be able to give to them in what is likely one of the largest financial transactions of their lives, and that we expect to get paid for it which is entirely negotiable, that’s a good thing,” said National Association of Realtors President Kevin Sears.

The group is a powerful Washington lobby with more than 1.5 million member agents – about 85% of the real estate agents in the country.  

“The more the consumer is educated and empowered, the more conversations we have with consumers, the better off everyone will be,” Sears said.

Many elements of the new practices are familiar to many real estate agents, buyers, and sellers. Many states have long required buyers to sign a broker agreement before starting the process. The rise of alternative brokerage models, such as Redfin, means many homeowners are aware they have options beyond the typical method of paying 3% to a listing agent and 3% to a buyer’s agent.  

But questions about what the changes will mean in practice are stymying agents across the country. What happens if a buyer has the money to compensate her broker up to a certain amount, but falls in love with a home that would cost more than the commission would work out to? On the flip side, what happens if it turns out that the seller of a particular home is also willing to compensate a buyer’s broker?  

Many real estate agents say a process that was meant to bring transparency is just creating more confusion.

“Now a buyer’s agent has to reach out to every listing they’re going to show to figure out what the commission is,” said Aaron Farmer, owner of Texas Discount Realty in Austin.  

In Austin, where a booming pandemic market turned sharply, leading to unsold inventory piling up, Farmer thinks it’s only natural that sellers will want to compensate buyer’s brokers, as a deal sweetener. That may not be the case everywhere, however, and Farmer also worries egos may get in the way of smart business decisions in some transactions.  

Andi DeFelice, owner of Savannah, Georgia-based Exclusive Buyer’s Realty, thinks first-time buyers stand to lose the most from the rule changes. Many who are already strapped for cash may have trouble also coming up with the money for the commission, forcing them to negotiate on their own, she thinks.  

"Don’t force our clients into a situation where they have no representation in the biggest transaction in their lives,” DeFelice said. “If you’ve never done it before, it’s not easy. There are so many steps to buying a house. Do you know a good termite inspector, a good insurance agent, a good lender? There are so many aspects to the transaction.” 

DeFelice says she’s confident the industry will move past what she calls the “hiccup” of the Saturday deadline and adapt relatively quickly, but others expect bigger changes ahead. 

“For consumers, things are not going to change much in the immediate future,” Brobeck told USA TODAY. "But it’s like a dam that’s springing a leak. I’m fairly confident that within five years the industry will look quite different.” 

Farmer, of Texas Discount Realty, agreed.

"I'm already seeing a lot of people saying, 'I’m going to get out of the industry, I don’t want to deal with the changes,'" he said. "The way I’ve always looked at it is if there’s fewer agents, it helps the industry. You could drop commission rates that way and do more volume."

Andrea Riquier covers the housing market.