The New Rule That's Changing the Game for Homebuyers
A new rule is set to revolutionize the housing market, forcing buyers to think seriously about how their agents get paid and potentially saving them thousands of dollars.
Housing MarketReal EstateBuyerrepresentation AgreementNational Association Of RealtorsHomebuyingReal Estate NewsAug 19, 2024
The new rule is part of a sweeping legal settlement that promises to fundamentally rewire the housing market. It will force buyers to think seriously about how their agents get paid, something they rarely had to consider in the past. Some buyers could find themselves legally bound to a clumsy agent or on the hook for thousands of dollars. Real-estate agents, on the other hand, may struggle to get would-be clients to sign on the dotted line.
The typical homebuying process used to involve a seller hiring an agent to market their home in exchange for a cut of the sale price. The seller's agent would then list the home on a multiple listing service, a local database where other agents can find details on homes for sale, and promise to split their commission with the buyer's agent. However, this system has been criticized for making no sense for sellers, who hope to collect the highest possible price, to funnel a percentage to the buyer's agent.
The National Association of Realtors, the powerful industry group that effectively controls about 97% of local multiple listing services, has agreed to update the rules governing local multiple listing services and agents who use them. As of August 17, agents can no longer advertise commissions on the MLS, which means the databases can no longer be used as a cudgel to make sure agents get paid the typical commission.
The new rule will require buyers' agents to get clients to sign an agreement that spells out a few things. First, the agent will have to say how much they expect to be paid. This could be a percentage of the purchase price, like 2.5%, but it could also be a flat fee or even an hourly rate. And unless both sides agree to amend the contract, the buyer's agent can't receive more than that amount down the line.
The Consumer Federation of America has raised concerns about the standard forms promoted by some state Realtor associations, saying even lawyers might struggle to parse the tiny typeface and thick legalese. However, the new setup has benefits. Sellers often interview several agents before picking the one who seems like they'll reel in the most lucrative offers. Buyers should similarly vet agents with an eye toward the bottom line.
The idea that sellers pay both agents' commissions has always been a clever sleight of hand. Buyer-representation agreements may be thorny, but at least they'll make it impossible for buyers to ignore the costs of using an agent. Real-estate agents, like people in any other job, provide a service. And nobody works for free.
Ultimately, this is about ensuring that both a buyer and their agent enter the relationship with a clear understanding of what they'll get out of it. A buyer might want to ask a prospective agent: \
Frequently Asked Questions
What is a buyer-representation agreement?
A buyer-representation agreement is a contract that outlines the terms of a real-estate agent's services and how much they expect to be paid.
How will the new rule affect homebuyers?
The new rule will force homebuyers to think seriously about how their agents get paid and potentially save them thousands of dollars.
What is the National Association of Realtors?
The National Association of Realtors is a powerful industry group that effectively controls about 97% of local multiple listing services.
Can buyers still negotiate commissions with their agents?
Yes, buyers can still negotiate commissions with their agents, and the new rule may actually make it more likely for them to do so.
What are the benefits of the new rule?
The new rule promises to fundamentally rewire the housing market, and it's up to buyers to take advantage of it. Buyers may be more likely to vet their options before settling down with an agent, and many could actually spend less on commissions.
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