You have probably already heard about some of the important changes that have been happening in the housing market. It was big news with big changes, so even if you aren't in the immediate market to make a real estate purchase, you've probably read or heard something about it. Let me break down what has occurred and what it means for you, especially if you are thinking about buying or selling a home in the near future.
For some of you, it might be old news. Others might have heard about it but don't quite understand what the changes entail if they're not actively looking at properties with an agent. The new laws went into effect in August of 2024. That is when the market usually starts slowing down, so many people getting ready to buy and sell in 2025 might need to know how this will affect them. Read my more detailed post titled "Understanding the New Buyer Broker Agreements: What Every Homebuyer Should Know."
What's Changed and Why It Matters
In March 2024, something big happened in the real estate world. The National Association of Realtors® (NAR) made some significant changes to how real estate agents work and get paid. These changes affected anyone looking to buy or sell a home starting on August 17, 2024.
The Big Two Changes
1. New Rules for House Hunting
Remember when you could just call up a real estate agent and go look at houses right away? Well, that's changing a bit. Now, you'll need to sign a simple agreement with your agent before they can show you homes. Don't worry - it's not as scary as it sounds! This is a new law and applies to all agents in the entire United States.
2. Changes in How Agents Get Paid
The way agent payment information is shared is changing too. Before, this information was posted publicly on the home listing system (MLS). Some third party real estate websites also showed what a buyer's agent would receive. Now, it'll be handled more directly (and privately) between the people involved in the sale. Your agent might not know how much the seller is paying, if anything, until a contract is written up and negotiations are begun.
What This Means If You're Buying a Home
Let's break down what you need to know as a homebuyer:
The Agreement Process
Think of the new buyer-agent agreement like a handshake deal, but on paper. You can choose:
- A one-time agreement for just one house or a one-day showing of multiple properties
- A short-term agreement for a week or two or 30 days
- A longer agreement if you're planning an extended house hunt
The best part? You get to decide what works for you and who you prefer to work with on a long-term basis. Start with a short-term agreement and if you like the agent and plan to continue working with them, then sign a longer-term agreement with that agent. This way you're not stuck with an agent that you don't click with. I suggest if an agent you've never worked with before insists on a long-term, exclusive relationship that you find another agent or only sign a very short-term form with them and stay firm with your decision.
I have never personally used Buyer Agreements. I wouldn't want to sign an extended form if I was meeting an agent for the first time. What if I didn't like them? I haven't felt the need to force a buyer to work with me, and it has never been an issue. But now it's the law. You have to sign an agreement before an agent can take you through a home. Most brokerages require these agreements to be on file with the office so they know their agents are following the law. At least you have a choice as to how long that agreement will last.
Understanding the Costs
The new rules make it crystal clear what you're paying for. Your agent will explain:
- How they get paid - we still try to get our commission through the seller
- What services they will provide
- How long the agreement lasts
- What happens if things don't work out
Good News About Seller Offers
Worried about closing costs? Don't be! Sellers can still help with:
- Closing costs
- Agent fees
- Other buying expenses
Your agent can find out what help is available and negotiate on your behalf.
What This Means If You're Selling a Home
If you're planning to sell, here's what you should know:
You're Still in the Driver's Seat
- You decide if you want to offer any incentives to buyers
- You choose how much you're willing to pay buyer's agents
- You control the terms of the sale
Clear Communication is Key
Everything about agent payments needs to be:
- Written down clearly
- Agreed upon upfront
- Properly documented
- Easy to understand
Listing Your Home
While you can't post agent payment info on the public listing anymore in the MLS (Multiple Listing Service) and other places, you can still:
- Advertise other buyer incentives
- Offer closing cost help
- Make your home attractive to buyers in other ways
My Personal Take
There were two class-action lawsuits against the National Association of Realtors® (NAR). You can check these lawsuits out by searching for Moehrl v. National Association of REALTORS®, et al, Sitzer/Burnett v. National Association of REALTORS®, et al, Gibson v. National Association of REALTORS®, et al. and Umpa v. National Association of REALTORS®, et al. The first two were filed in 2019 and the second two followed after. In a nutshell, attorneys gathered sellers who were not happy that they had to pay a commission to their listing agent to get the property sold but also to pay a Buyer's Agent who was representing and giving their buyer fiduciary duty. Many, if not most, real estate agents feel that the transaction itself is where the real estate agents' commissions come out of.
The buyer is making the purchase and will be the party bringing money to the closing. The seller is paying the commission out of their sale proceeds. There has been a decades-long argument on who actually paid the commission prior to these new changes. Some agents feel it was the sellers paying it, and it shows on the Closing Statement that it is a seller fee. However, other agents are adamant that the buyer is actually paying the commission by making the purchase at the agreed-upon price and the commission is part of the final accepted contract price.
In other words, the commission and other closing costs are absorbed into the sale price for both the buyers and the sellers (although the buyers will have separate closing costs besides their down payment, and this is money they need to bring to the closing table). The entire commission was shown on the seller's side because they were (hopefully) getting money at closing after closing costs. Sure, some sellers have to sell and also bring money to the closing table, but with most sales, the sellers have enough equity to pay all of their closing costs, including the commission as it was handled prior to the new changes, and have money left over. And so far, most are still paying it out of their proceeds.
A question has been made that if buyers are now expected to pay their portion of the commission, will this affect sale prices by reducing them? Most agents feel the market value of a house is what buyers are willing to pay at that time, and the commission shouldn't affect market price. But think about it. If the buyers have to bring extra cash to the closing table shouldn't the price reflect that by being lower? Of course, sellers won't agree, and I've been a seller and will probably sell at least one more time in my life, and I don't mind it the way it was done before. I'm just glad to get my home sold for a price I'm happy with.
When buyers have been pre-qualified/approved it wasn't based on a commission fee that they would be responsible for. Many buyers are already bringing cash to the closing to cover the down payment and other closing costs. Adding a commission to their closing costs could be the camel that breaks the back of them being able to even make a purchase. At least a place they want that should otherwise be in their price range. This could force them to lower their expectations, which many buyers are already doing with ever-higher list prices and interest rates. Other buyers will continue renting, possibly forever. At some point, this could create a buyer's market and sellers might have to rethink the commission issue. It is currently difficult for many buyers with high prices and interest rates, especially first-timers.
The other issue is that unless it's a cash purchase, current lending qualifications are not truly equipped to allow a buyer to simply add these costs to their mortgage, amortized over how many years they take it out for. If a seller isn't paying a buyer's agent commission, or not the minimum the buyer's agent requires, the buyer can ask for this difference in the form of closing costs or a higher price matching the commission the buyer's agent is asking for by adding it to whatever price has been agreed on. That can cause problems. The property will have to appraise if there is financing, so you can't always just add money to a contract price to cover certain things. And what if the buyer already needs seller assistance via help in closing costs? Differing mortgage options allow for different percentages/amounts that a seller can contribute to the buyer.
Another issue is sellers who refuse to offer any commission whatsoever to a buyer's agent. That could cause a good buyer to walk away from that property. For buyer agents that call ahead of time to ask the listing agent if a seller is paying a coop commission, they might not even look at the property because the buyers can instruct their agent not to show them any properties where they would have to pay a commission.
And why don't all agents call listing agents ahead of time? Because we're learning that many agents are quoting a lower commission than what the seller would actually pay. Because of this, most agents are showing all homes and just writing their commission into the contract (which is one of the changes, at least in the Scottsdale real estate market and the Greater Phoenix area and suburbs and probably most areas in the country). Most areas had rules that a buyer's agent was not allowed to put their commission in the contract. Now we can. So instead of asking in advance and possibly being told a lower figure, we just put a commission into the contract and allow it to be negotiated by the seller.
Making These Changes Work for You
Whether buying or selling, here are some tips to navigate the new system:
For Buyers:
1. Interview several agents to find the right fit - if you're happy with your first agent then continue working with them
2. Ask about different agreement options - first time out you will most likely want a short agreement - for the day, week, etc.
3. Get everything in writing
4. Don't be afraid to ask questions
5. Understand what services are included
For Sellers:
1. Discuss strategy with your listing agent
2. Consider different compensation options
3. Keep good records
4. Be clear about your preferences
5. Stay informed about local market conditions
Tips for Everyone:
1. Take your time making decisions
2. Read everything before signing
3. Keep copies of all paperwork
4. Stay in regular contact with your agent
5. Ask for clarification when needed
Final Considerations
These changes might seem like a big deal, but they're really about making home buying and selling more transparent and fair for everyone. At least this is what NAR is saying after the lawsuit. Most real estate agents don't agree. We feel it was more transparent the way it had been done for decades.
Now it's a guessing game. Buyers are in the dark on who will have to pay their agent's commission until a contract is accepted. Buyers now have to sign a form before they can even view one property. Some agents required this in the past, but now every agent has to have a signed buyer form.
It's not just signing the form, it's having to explain to buyers what the form actually means to them. Is it good enough to do over the phone? Many agents require a buyer to meet them prior to the home viewing so they can explain everything and get the signature. Most buyers don't want to have a meeting prior to seeing a home. Some agents state that this will weed out unmotivated buyers.
Your real estate agent will guide you through these changes. They've hopefully been trained on the new rules and can explain everything in detail. The goal is still the same: helping you buy or sell a home successfully.
Remember:
- The basic process of buying and selling homes isn't changing
- You'll have more information about costs and services
- Everything will be clearly documented
- You still have room to negotiate
- Professional help is still available every step of the way
- Every buyer will need to sign a Buyer Agreement with any agent who shows them properties*
Looking Ahead
As these changes have rolled out, the real estate industry is adjusting and adapting. There have already been new changes to some forms that were already modified because of the lawsuit. In fact, one of our new forms has been deleted entirely. I am anticipating even more form changes in the future.
The most important thing is to work with a knowledgeable agent who can guide you through the process. They'll help you understand your options and make the best decisions for your situation.
Want to learn more about how these changes might affect your specific situation regarding Scottsdale real estate and the Greater Phoenix area market? Reach out to me by phone (480-906-1500), email (judyorr@judyorr.com), or my contact form and I will provide personalized guidance and answer any questions you might have.
*Please read my prior post linked to in the second paragraph. Only Realtors® that are NAR members have to have these forms signed. Yes, there are agents that are not Realtors® and they do not follow the Code of Ethics. Finding an agent that is not a Realtor® will not be easy. Some brokerages are leaving NAR but unless they can find an independent MLS they won't be able to list a buyer agent's commission paid by the seller. And if listing agents join an independent MLS, unless that MLS becomes widely popular and known, your listing won't get as many showings as listings in the main MLS in your area.
Posted by Judy Orr on
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