Changes to the Home Buying and Selling Process
In March of 2024, the National Association of Realtors (NAR) settled a lawsuit with homeowners regarding transparency around real estate agent commissions. The following changes being implemented are national changes to the real estate industry, not just localized to the Minnesota market.
There are three main changes:
- Offers of compensation to a buyer’s agent will be removed from the MLS. This began to take effect Aug. 15th, 2024, in our Twin Cities Market.
- Compensation in the past has been broker-to-broker. Now, compensation is being paid directly by the seller and/or the buyer. We will explain this in further detail below.
- Buyer’s agents must enter into a written agreement that clearly discloses compensation details before touring homes.
Common Questions and Misconceptions
I have heard commissions are no longer 6% and will drop dramatically. Is this true?
Commissions have never been set at any one fee and have always been – and will continue to be – negotiable. Agents, independently, may have a fee structure that they charge no different than other professions. For instance, an accountant, interior designer, or attorney may offer a different fee than someone else. In the past, the commission charged to the seller was paid to the listing broker, who then paid the selling broker a percentage of that overall fee. This was called “cooperating compensation.” Moving forward, there will no longer be broker-to-broker compensation.
Will all buyers now have to pay their agent’s commission?
Buyers can choose to pay their agent directly, but we do not expect that to be the norm. There are many benefits for a buyer to incorporate the fee into the purchase. For years, this has benefited both the buyer and the seller in terms of higher sales prices and less cash out-of-pocket for buyers. We expect this to continue. It will now look different on purchase and listing contracts as to where the compensation is coming from.
How will this work?
Sellers still have the choice to offer to pay a commission directly to the buyer’s broker. The difference now is that the seller is paying the buyer’s broker versus the listing broker paying the buyer’s broker. For example, in the past, a listing broker may have charged a 6% commission; the listing broker then typically shared, for instance, 2.7% of that commission as a cooperating compensation to an agent who brought the buyer to the home. Moving forward, a listing broker will only collect the amount the listing broker is to be paid from the seller. Using the example above, the new listing contract would state 3.3%. The seller has a choice (and, by the way, has always had this choice) of how much, if any, they would want to offer to pay the buyer’s broker, who brings in the buyer.
Moving Forward
There may be some disruption for a while until we all get used to the changes. But for the most part, we anticipate the way commissions are paid will not be that much different – it will just be more transparent.
Feel free to contact us with any questions you may have. Although changes are inevitable, one thing that has not changed is our team’s commitment to providing exceptional service.
