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The landscape of real estate agent compensation has shifted dramatically due to a significant lawsuit against the National Association of Realtors® (NAR) and other major real estate agencies. The lawsuit challenged certain practices around agent commissions as unfair, leading to new rules that affect how agents are compensated when a property is sold. Understanding these changes is not just important; it’s empowering. By grasping how the real estate business functions under the new guidelines, home sellers and buyers can navigate real estate transactions effectively and take control of their transactions.
Key Points:
- Two-Agent Transactions: In most home sales across the United States, two real estate agents or agencies are involved: one representing the seller and the other representing the buyer. According to studies, about 89% of transactions are conducted with this two-agent model. In comparison, only 11% of transactions involve a single agent or agency representing the seller and the buyer. This structure is important because it impacts how commissions are negotiated and paid and ensures that both the buyer and seller have professional representation with potentially differing interests.
- Seller’s Agent Commission: Traditionally, the commission for the seller’s agent is negotiated between the seller and the agent at the outset of the listing process. It is important to note that this commission rate has always been negotiable, despite a common perception of a “standard” rate influenced by market trends. No fixed or standard commission rate is mandated; sellers and agents are free to negotiate based on the specifics of each transaction. This negotiation can continue until the sales contract is finalized and signed by all parties involved. This flexibility in negotiation should reassure sellers that they have control over their financial arrangements and can negotiate a commission rate that they are comfortable with.
- Multiple Listing Service (MLS): Properties for sale are commonly listed on the Multiple Listing Service (MLS), a database that real estate agents and agencies subscribe to by paying a membership fee. The MLS provides a comprehensive inventory of properties for sale and facilitates sharing these listings with a broader audience, including through websites and apps operated by companies that pay to publicize them. The MLS is a powerful tool for marketing properties because it maximizes exposure to other agents and potential buyers.
- Buyer Agent Compensation in the Past: Historically, when a property was listed on the MLS, the seller’s agent would offer a commission to any buyer’s agent who facilitated the sale of the property. This practice helped to attract buyer agents, who, as studies indicate, bring nearly 89% of buyer traffic to a listing. Buyer agents could either accept the offered commission or negotiate different terms. This system ensured buyer agents were financially incentivized to show and promote a seller’s property to their clients.
- New Rules on Buyer Agent Compensation: With the new rules stemming from the lawsuit, sellers are no longer required to offer a commission to a buyer’s agent via the MLS. However, this does not prohibit sellers from providing such compensation. Sellers can still choose to offer a commission to attract buyer’s agents, which can be an effective strategy for encouraging agents to show their property to potential buyers. This change gives sellers more control over their expenses and the ability to decide whether offering a commission is in their best interest to generate interest in their property. Sellers need to understand that not offering compensation may reduce the visibility of their property to potential buyers, as buyer agents may be less incentivized to show it.
- MLS Exceptions: Not all MLS companies are bound by these new rules. Some MLS organizations are privately owned and may not be affiliated with the National Association of Realtors®. These independent MLS companies can choose to maintain traditional practices, including offering compensation to buyer agents. This means that while the new rules may apply to many MLS listings, sellers and agents should verify the specific practices of their local MLS.
- Best Practices for Sellers: Given these changes, sellers need to have an open and transparent discussion with their real estate agent about the pros and cons of offering compensation to buyer’s agents. Offering compensation can significantly enhance a property’s market exposure, attract more buyer agents, and lead to a faster sale and a better sale price. By understanding the potential benefits, sellers can approach agent compensation with optimism and hope for a successful home sale.
Understanding these changes and how they impact real estate transactions can help both buyers and sellers make informed decisions. As the real estate industry evolves, staying informed and working closely with a knowledgeable real estate professional will be vital to navigating the complexities of buying and selling homes.
