New Real Estate Commission Laws 2024

3/22/2024

NAR has recently reached a settlement in the case regarding real estate commissions. Real estate professionals, like me, are very busy lately navigating the troubled waters that are swirling around us.

First of all, a few disclaimers. These views are entirely mine. I am not representing anyone else. In addition, my views are strictly from the viewpoint of me as a real estate agent. I know to stay in my lane. I am not a loan officer, a mortgage company, a politician, or a real estate attorney. Also, the National Association of REALTORS has very clear language about not setting prices and about allowing for negotiations in listing agreements. This is made very clear throughout real estate school and during broker meetings, classes, etc. And finally, I will not discuss politics here, and I will not allow politically-motivated comments to be added. I will discuss the facts, as we know them so far, and I will discuss what I think will happen in the future.

Read on to see my take on the changes that are likely coming in July, 2024.

For anyone who has not yet heard (If so, have you been living under a rock? Because I feel like my entire newsfeed has been stuffed to the brim with this news!), a very large lawsuit has been tried over real estate agent commissions, particularly whether or not sellers of residential property are obligated to pay buyers' agents to bring buyers to view the homes they have listed.

So first, to the sellers who are already asking, "Well, do I have to pay the buyer's agent's commission now?" here is my short answer:

The new laws do not take effect at least until mid-July. But either way, you are not now, nor have you ever been, obligated to pay any particular commission percentage or to allow your listing broker to pay the buyer's agent's broker a portion of that commission. Both line items are negotiable within the listing agreement now and have been for many years. However, if you want your house to sell quickly and for top dollar, you will pay buyers' agents to bring their buyers. Many buyers, unfortunately, are barely able to pay their down payment and closing costs, so by forcing them to pay their agent's commission, you will force them to not view your home. Your home will not even be a contender for them, thereby grossly limiting your potential buyer pool.

Now, let's get into the details.

What are the New real estate commission Laws?

Two changes are likely to come in mid-July. These new changes have not officially been signed off on, but they are expected to take effect, eventually.

1. Buyer's agents will be required to have a Buyer/Tenant Representation Agreement signed by their home buyer(s) prior to showing houses and conducting business on their behalf.

2. Listing agents will no longer be allowed to enter buyer's agent compensation information into the MLS.

The first one is simple. Never, in the five years I've been a real estate agent, have I not had a Buyer Representation Agreement in place. Sometimes that representation agreement is only for a particular home or for a very short time period, but I have always made sure to have that agreement signed. If buyers do not sign a Buyer Representation Agreement, then I work for the seller of whatever home I am showing. I am not allowed to offer advice; I am allowed to give only the material facts about the home. So having a Buyer Rep Agreement in place is, and has been, the best practice for both the agent and the buyer they are working with. So no change there, at least on my end, when I act as the buyer's agent. (Read on to see how that affects listing agents and their duties to their sellers.)

The second one, however, will make my work, when I am working for a buyer, quite a bit more tedious. If I have a buyer who says, "I want my own representation. If the seller is not willing to pay you, I will cover the difference. Perhaps my offer to the seller will reflect that extra fee I will incur, but either way, you (my agent) will get paid," then for me, it's business as usual. I can show all the houses they are interested in, and contact the listing agent to find out about compensation for the house(s) my buyers are definitely interested in, and we will draft the offer accordingly.

But if I have a home buyer who is unable financially or simply unwilling to pay my commission, I will need to call each listing agent, one by one, prior to showing the house to ensure that we are not wasting valuable time viewing homes that my buyers will not be able to purchase. For any of you reading this who have worked as a buyer's agent, you know that sometimes, getting in touch with listing agents is like having multiple root canals done. Will this cause the buying process to take longer? Yes. If listing agents don't step up their game and start answering their phones, will it cause a complete backlog? Probably.

How will the new laws affect buyers?

1. Marginalized groups and others who are cash-poor: For those buyers who desperately want to be homeowners, but who barely have enough money saved up for their minimum down payment, closing costs, and inspection, the number of homes they can view and still have their own representation may be reduced, thereby further reducing their ability to find a home that they like and can afford.
2. VA buyers: As current rules stand, veterans using a VA loan to purchase their home will not be able to buy a home in which a seller is not offering buyer's agent commission, because currently VA loans specifically do not allow veterans to pay commissions to their agents. This is one of the biggest unintended consequences that is already receiving significant blowback.

How will the new laws affect sellers?

Smart sellers will understand that nothing has changed. Again, sellers are not now, nor have they ever been, required to pay a certain commission or distribute part of that commission to a buyer's agent.

Smart sellers will understand the value that their listing agent brings. During the 2020-2021 heyday for sellers, new flat-rate / limited representation brokerages emerged and offered property owners the option to pay very low commissions. Those agreements required sellers to take their own photos and handle all showing requests themselves, among other things. What happened to those listings? They sat on the market for months, while their competition sold in 3-6 days. The same thing happens with For Sale By Owner homes. They sit around, the sellers continuing to pay mortgages, utilities, HOA fees, etc. for months, ultimately selling for under market value, while homes that are listed in the MLS that are priced fairly sell faster and for more money.

Smart sellers will understand the value in having buyer's agents send their listings to their buyers, show their homes to their buyers, and write up offers on their homes.

Smart sellers will understand that because of the new rule about the requirement for a buyer to have representation (if I'm reading this correctly), their listing agent will be forced to represent both the seller and the potential buyer as intermediary without appointments, thereby negating the listing agent's fiduciary duty to the seller. The listing agent will no longer be able to offer advice, particularly once an offer is made, but will be required to simply send the seller the offer and let the seller make a decision without their professional input.

Smart sellers will remember that they will probably want to both sell their home and buy a new home, and what goes around, comes around. They can't refuse to pay a buyer's agent during the sale of their home and then expect the seller of the home they are buying to pay commissions to both agents. Sellers who are listing their homes have almost definitely benefitted from having the sellers of the homes that they previously purchased pay their agents. Karma.

Y'all, I do not have all the answers. There will most likely be much more blowback and many more lawsuits coming from both sides before this is all said and done. The people who are really making out in all of this are the lawyers!

These are simply my thoughts on the potential ramifications of this lawsuit. For people who don't lose their heads, I don't think much will change. There will be some additional tedium for real estate agents - both buyer's agents and listing agents - at least at first, but we will get through this and adapt to the new normal. Real estate transactions may take a little longer and will definitely require a great deal more communication, but truly, not much has changed.

0 Comments