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n August 2024, the National Association of Realtors (NAR) introduced significant changes to real estate commissions, shifting the dynamics of residential transactions. While these reforms aim to increase transparency and competition in the market, they also present new challenges for buyers, sellers, and agents.
Key Changes to Real Estate Commissions
Traditionally, home sellers paid both listing agents' and cooperating agents' (buyers' agents) commissions. Under the NAR's new rules, buyers are now responsible for paying their cooperating agents' fees. This change may impact how transactions are negotiated and financed, although its actual effect is uncertain.
Some notable changes include:
1. Buyer-Agent Compensation: Buyers must negotiate and agree to compensation with their agents before viewing properties. This can be structured as a flat fee, percentage of the sale price, or hourly rate.
2. No Commission Disclosure on MLS: Sellers and buyers now engage in negotiations about commission structure during transaction discussions, rather than having it disclosed on the Multiple Listing Service (MLS).
3. Increased Negotiation and Competition: Both listing and cooperating agents face pressure to reduce commissions as buyers and sellers negotiate more aggressively.
4. Impact on Mortgages: Discussions are underway to allow buyers to roll their agents' commission fees into mortgage loans, potentially giving them more purchasing power.
Implications for Buyers, Sellers, and Agents
Buyers may benefit from negotiating better rates with their agents but will also face additional costs in the home-buying process. First-time buyers and those with limited funds will feel the impact most significantly.
Sellers may save on commission costs if buyers cover their own agents' fees, but they may attract more offers or higher bids by offering to pay some or all of the cooperating agent's commission.
Agents must adapt to promote themselves for their expertise and knowledge of local markets. They can help prospective buyers structure commissions effectively, which could become a valuable service in this new landscape.
Navigating the New Landscape
Understanding the NAR changes is crucial for buyers and sellers. Buyers should carefully evaluate agent contracts and consider how commission fees affect their budgets. Sellers should weigh the benefits of covering cooperating agent commissions to attract more competitive offers. Agents must focus on demonstrating their value and adapting their practices to remain competitive in this evolving market.
