Guidelines offer clarity on who pays agent fees in real estate transactions
The National Association of Realtors (NAR) has updated its frequently asked questions (FAQs) in response to confusion surrounding its recent settlement and changes to how real estate commissions will be handled.
The updated FAQs page, which now contains 121 entries, addresses growing concerns among homebuyers, sellers, and real estate professionals about the shifting landscape of broker fees and compensation structures.
The changes, which came into effect on August 17, fundamentally alter the way commissions are negotiated and paid. Under the new rules, homebuyers are now required to sign written agreements with their agents, clearly outlining how much they will pay for the agent’s services. This is a break from the traditional model where sellers would pay both their agent and the buyer’s agent from the sale proceeds.
The revised guidelines are aimed at reducing antitrust concerns and fostering healthier competition, but some worry about the potential burden on first-time buyers or less experienced agents.
“The following questions will help homebuyers and home sellers better understand the recent practice changes in residential real estate and what the changes mean for them,” NAR wrote on its FAQs page. “While these are intended to provide an overview, real estate transactions can take many forms.”
Previously, buyers often assumed that brokerage services were free to them since the seller typically covered the costs. With the new structure, buyers are expected to negotiate and agree on the commission for their agents in advance, which may affect how real estate transactions are conducted moving forward.
One of the more controversial aspects of the settlement is the removal of commission information from multiple listing services (MLS). Previously, MLS listings would show how much a buyer’s agent could expect to be paid. Now, offers of compensation will no longer be displayed on MLS platforms, adding complexity to transactions and requiring off-MLS negotiations between agents and clients.
For sellers, the FAQ stressed that they still have the option to offer compensation to buyer agents, though this must be done outside the MLS system.
Offering compensation can remain an effective way to attract buyers, especially first-time homebuyers or those from lower-income backgrounds who may benefit from reducing upfront costs. However, this practice must now be more explicit and fully agreed upon by all parties.
Dean Kelker (pictured), chief risk officer of real estate service provider SingleSource, weighed in on the broader impact of the settlement.
“The primary change from the NAR settlement is that buyers, many of whom believed brokerage services were free to them, will now be in the position of having to pay for these services,” Kelker said in an emailed statement. “In the past, buyers’ agents were directly compensated by the seller for delivering a qualified buyer for the property.
Read more: NAR settlement: How could it boost the mortgage industry?
“Usually, the buyers’ agent was actually working as a sub-agent of the seller rather than actually representing the buyer. Now, each buyer will be required to execute a compensation agreement with the agent they are working with that specifies the agent’s compensation that the buyer will be responsible for paying.”
For first-time buyers, or those unfamiliar with the homebuying process, the new rules may present added challenges. Kelker pointed out that, in some cases, buyers may have to pay part or all of their agent’s commission at closing if the seller refuses to offer concessions.
“Having a fixed percentage for sales commissions can seem like an anachronism from the seller’s perspective in the context of rapidly escalating property values over the past few years,” he added. “This can become an issue of whether there is a true value proposition where the commission cost has climbed 20 or more percent over the past couple years solely as a result of inflation. Ultimately, commissions will more closely reflect the effort and costs associated with marketing and selling a property instead of a blanket percentage regardless of the transaction price.”
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Kelker concluded that these changes are unlikely to have a large-scale impact on home prices or the supply of available homes, noting that market factors such as interest rates and supply-demand imbalances will continue to play the largest role.
“While the NAR settlement impacts how real estate agents are paid, it is unlikely to have a material impact on the residential real estate market at large in regard to supply or pricing,” Kelker said. “Housing prices will continue to be driven by interest rates and supply and demand. Initially, it appears commissions are slightly moderating.”
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