New Commission Rules for Real Estate Buyers and Sellers

A huge jury verdict recently happened which will dramatically alter how home buyers, sellers and their agents deal with real estate commission payments. The changes will impact you if you are buying or selling a single-family home. Knowing how to navigate the new commission rules could save you thousands of dollars. 

In the past, a seller of a single-family home would pay a commission to their real estate agent and also pay the commission for the buyer’s real estate agent.  Typically, the commission was from 5 to 6%.  This commission was then split between the seller’s agent and the buyer’s agent.  

How Did the Change in Real Estate Commissions Happen?

In a class action lawsuit, Missouri home sellers challenged a National Association of Realtor (NAR) rule requiring an agent for a seller to provide a blanket offer of compensation to a buyer’s agent to list a home on the NAR’s affiliated Multiple-Listing Service (MLS).  In Burnett v. NAR et al, the eight-person jury in a Kansas City, Mo., federal courtroom, came back after an 11-day trial and found the NAR and other corporate defendants liable.  In March 2024, NAR settled the lawsuit instead of appealing the verdict.  

The “standard practice” of the seller’s agent splitting the commission with the buyer’s agent had endured for decades, but was found by the jury to stifle competition and inflate home prices.  The jury found the commission structure lacked transparency and encouraged real estate  agents to divert buyers away from properties with lower commission potential.

The NAR and several large brokerages were ordered to pay $1.8 billion in damages to the homeowners who had sued.  Consumer advocates are predicting a better landscape and more transparency for home buyers and sellers.  

What Do Real Estate Sellers Need to Know Now?

Remember that 6% commission you were charged when you sold your $900,000 home?  Typically, your real estate agent pocketed half of that $54,000 commission, and paid the other half ($27,000) to the buyer’s agent. That was called “the split.” Usually, those total dollars came out of the seller’s pocket, and were “bundled” into the market price of the home.

Under the new rules the seller is not responsible for paying for the buyer’s real estate agent’s share. So, in the example above, the seller would only pay their own agent fee of $27,000.  The rate can now be negotiated between the seller and their real estate agent.  

How are Home Buyers Impacted by the Commission Changes?

Many would-be buyers work with a “buyer’s agent.” Their real estate agent is responsible for presenting the buyer with a variety of possible choices, and helping them through the complicated inspection and purchase process. The higher the value of the sale, the more commission the buyer’s agent will gain from their side of “the split.” Many buyers do not pay much attention to how these transactions work behind the scenes.  They might even assume these services are free to them.

Now buyers can negotiate their real estate agent’s fee directly with their agent. “The split” is done. This fee could depend on several variables, such as how much time an agent spends with you (a week or a year), and how involved they are in sale details and negotiation. 

In fact, a buyer can opt to go without a real estate agent, and simply hire an attorney (at a much lower fee) to review the contract agreement at time of purchase. They could also seek an agent who would act solely as a consultant, without offering full services.

Buyer’s agents are required to sign written agreements with clients stating exactly what the agent will provide, and for what price. 

Should Sellers Sign a Listing Agreement?

Sellers are not required to sign a listing agreement. However, a listing agreement protects you if your transaction is bumpy, commission procedures are unclear, or something goes wrong that is highly complicated. Given we are in the early days of this huge shakeout in the commission landscape, seek the advice of a real estate attorney if you prefer not to sign a listing agreement. If you do sign a listing agreement, consider reviewing it with a real estate attorney before embarking on your sale.

Know Your Rights. Protect Yourself.