Housing

The Most Expensive Home Selling Fee Might Be a Thing of the Past

Grace Cassidy

Published: March 23, 2024 8:05 am

Selling a home is not cheap. Homeowners looking to sell their home or an investment property need to do a lot of work once they decide to offload their asset. These tasks typically include forking out some cash. To get a home ready to sell, a homeowner may have to make some minor repairs, clean up the yard, sacrifice time away from home to allow for showings, and of course, pay their agent a commission.

Real estate agents receive a commission after a home has sold. A typical commission price is between 5 and 6 percent of the total sales price for residential listings. That commission price is then split between the seller’s and buyer’s agents. At brokerages where agents make a salary, the commission will probably be lower. (Also read: 5 reasons you shouldn’t sell your home in 2024)

Most often, the seller pays the entire commission to their real estate agent. The seller’s agent then splits their pay with the buyer’s agent in an arrangement known as cooperative compensation.

But that common practice is changing. Earlier this month, the National Association of Realtors (NAR) agreed to pay $418 million in multiple class-action lawsuits filed against the trade group. Rules for how commissions are set and paid are at the center of the legal proceedings.

New rules

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As part of the settlement, the NAR plans to implement a set of new rules surrounding agent commissions. The trade group will implement these rules starting in mid-July as long as the court signs off on the settlement.

Now, brokers listing homes for sale on any NAR-affiliated database will no longer be able include offers of compensation for a buyer’s agent. This new rule will effectively keep buyer’s agents more honest, as they won’t have any reason to keep their clients from viewing properties without a cooperative compensation offer. Previous rules incentivized buyer’s agents to eschew certain listings if the cooperative compensation was split unevenly between the seller’s and buyer’s agents. This practice keeps buyers away from potential homes.

Lawsuits against the NAR claimed that the previous rules artificially inflated agent commissions, with the seller left to foot the bill. The buyer agent’s commission is tacked on to the final listed sale, which leads to an inflated sales price. Allowing buyers to pay the commission for their own agent would reduce that price inflation and give them the opportunity to negotiate the commission down. This could ultimately save the buyer money, even though they would have to pay an extra fee as part of closing costs.

However, these proposed rules do not necessarily mean that cooperative compensation is gone forever. Some sellers may still feel obligated to pay the full commission, especially if they have trouble finding a buyer. In addition, the NAR’s new rule does not keep buyers and sellers from negotiating a cooperative compensation agreement outside of the NAR-affiliated Multiple Listing Services (MLS) platforms. There is also an exception to the new rule, which allows a buyer’s agent to entertain cooperative compensation offers on internal listings within their own brokerage.

Impacts on buyers and sellers

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Buyers in today’s market are frequently struggling to make down payments and closing costs already, and many will have to come up with the cash to pay out their real estate agent. Buyers could also be more selective with who they choose as their agent.

According to the NAR’s 2022 Profile of Home Buyers and Sellers, 67 percent of buyers interviewed just one agent during their home search — meaning the first person they reached out to ended up helping them find their home. Now, buyer’s agents may have to be more competitive in their commission pricing, and buyers may take more time to shop around to get the best price. Some buyers may forgo an agent altogether until they’ve found a home they want to purchase and just need someone to broker the deal.

Buyers paying for their own agent could also impact the way home prices are negotiated. They may make lower offers to begin with, since they know that the seller will not be the one paying their agent.

The way sellers approach a deal will change considerably, too. They may also shop around to find an agent that who will negotiate their commission, just as buyers will. And of course, sellers will save quite a bit of money if their commission cost is cut in half.

Ultimately, we are unlikely to understand all of the implications until these new rules are in effect for quite some time. It may take a few years to fully grasp the impacts of a real estate market will significantly less cooperative compensation deals.