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Understanding Changes in Real Estate Commissions

For years, homebuyers haven’t had to pay their real estate agents directly. Instead, sellers typically paid their agents a commission, which was then split with the buyer’s agent. However, this is set to change due to new rules announced by the National Association of Realtors (NAR). Let’s explore what these changes mean for you.

The Traditional Commission Structure

Historically, the home seller paid their real estate agent a commission based on the sale price, usually around 5% to 6%. The seller’s agent would then split this commission with the buyer’s agent, often on a 50-50 basis. This split was listed on a multiple listing service (MLS), a database accessible to real estate agents.

For example, if a home sold for $400,000 and the buyer’s agent received a 3% cut, they would get $12,000 from the seller’s agent. However, this fee structure could lead sellers to increase their listing prices, indirectly passing some of the costs onto buyers.

Upcoming Changes in Real Estate Commissions

On March 15, 2024, the NAR proposed significant rule changes to settle lawsuits over real estate commissions. These changes, set to take effect in mid-July 2024, include:

• Buyers’ commissions won’t be listed on the MLS.
• Buyers’ agents will require a signed buyer representation agreement with the homebuyer.

These changes could dramatically shift who pays the buyer’s agent and how much they get paid, potentially affecting home sale prices.

Future Implications

Although the new rules don’t prohibit the seller’s agent from splitting their commission with the buyer’s agent, this would have to be negotiated off the MLS. This could lead to a scenario where both the seller and buyer pay their respective agents.

Agent fees could now be determined in several ways for homebuyers:

• Percentage of the sale price: Buyers might pay a percentage of the sale price or negotiate an arrangement that aligns their goal of paying a low price with the agent’s commission.
• Flat fee: Buyers pay a flat amount to an agent to help them with the entire process.
• A la carte fees: Buyers pay a fee to one or more agents to help with different parts of the process, such as seeing a home, preparing an offer, and receiving assistance with the closing process.
• Seller concessions: Sellers might offer to cover some or all of the buyer’s agent’s fee as a concession.

These changes could lead to lower commissions and home prices, but buyers might need extra cash for their agent, making it more challenging for first-time and low-income buyers.

Do You Need a Real Estate Agent?

While you don’t necessarily need a real estate agent to buy a home, most buyers still prefer to use one. According to the NAR’s 2023 Profile of Home Buyers and Sellers, about 89% of buyers used an agent. An agent can help you find a home, understand the process, and negotiate the price and offer.

Preparing to Buy a Home

Finding an agent is just one part of the homebuying process. You also need to prepare for other upfront closing costs and the ongoing monthly cost of having a mortgage. Your credit history and scores play a crucial role in your mortgage options and costs. Check your credit report and take steps to improve your credit before buying a home.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we are committed to helping you navigate these changes and find the best mortgage options for your needs. Call us today at 213-732-3074 for any mortgage service needs. Our experienced team is here to assist you every step of the way.

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