Key Practice Changes in Real Estate in 2024
Major Overhaul in Real Estate Commissions: What You Need to Know by August 17th, 2024
By August 17th, 2024, the real estate industry will undergo a significant transformation in how commissions are paid. These changes, the most substantial in over 30 years, stem from a lengthy lawsuit involving the National Association of Realtors (NAR), various Multiple Listing Services (MLS), and real estate brokerages across the United States. The settlement resulting from this lawsuit has effectively decoupled real estate commission structures.
Decoupling of Compensation: What It Means
While this settlement decouples the way compensation is handled, it does not eliminate compensation itself. Traditionally, real estate commissions were based on a broker-to-broker cooperation system. In this system, the listing broker would negotiate a commission with the seller and then share a predetermined portion with the buyer’s agent. This arrangement was typically advertised through local MLS data.
The recent lawsuit suggests a shift to a direct compensation model, promoting greater choice and transparency. In this model, listing agents will negotiate their compensation directly with sellers, and buyer’s agents will do the same with buyers. Although listing agents may still choose to share a portion of the seller’s negotiated compensation with another broker, this fee can no longer be advertised in the MLS under the settlement terms.
Mandatory Buyer Agent Agreements
While buyer agent agreements are not new, they will become mandatory in all states by August 17th, 2024. Some states, such as Oregon and Washington, have already implemented these requirements. Moving forward, any real estate agent showing a property to a prospective buyer must have that buyer sign an agreement—whether exclusive or non-exclusive—or risk facing fines.
The Three Core Agreements in Real Estate Transactions
From now on, three key agreements will govern real estate transactions:
Listing Agreement: Between the seller and the listing broker.
Buyer Representation Agreement: Between the buyer and the buyer broker.
Purchase Agreement: The offer and terms of sale agreed upon by the seller and buyer.
Both listing agents and buyer’s agents must clearly communicate, educate, and disclose how compensation works as early as possible in the transaction process. It’s important to note that neither seller-broker nor buyer-broker commissions are set by law; they are fully negotiable. Buyer-broker compensation cannot exceed the amount negotiated and signed off by the buyer and their broker so buyers know what their agent is to be paid before going into a transaction.
How Commissions Can Be Paid
Buyer broker ommissions can still be paid in several ways:
Buyers can pay their agent directly.
A seller concession to cover the buyer's agent fee can be negotiated into the contract terms.
A combination of both methods can be used.
Ultimately, the commission paid to a Buyer Broker is now something buyers can negotiate upfront. Sellers also have more flexibility, as they can negotiate their agent’s fee at the outset and determine the buyer agent’s fee when an offer is submitted, depending on the terms of that offer. As a team, we are committed to negotiating on behalf of our clients, whether on the listing or buying side of a transaction. We fully understand the nuances of these changes and are dedicated to ensuring our clients receive the best possible representation and service.
To learn more about our team, what to expect from working with us on the buy side of a transaction, click here and if you are a potential seller or interested in our listing services, click here.
