Recent changes in real estate commissions, especially following a major settlement involving the National Association of Realtors (NAR), are set to alter how commissions are handled in real estate transactions significantly.
This will affect both buyers and sellers:
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Shift in Commission Payment Responsibilities: Traditionally, sellers paid the commissions for both their own and the buyer’s agents, often totaling around 5-6% of the home sale price* With the new changes, this responsibility shifts significantly. Starting from mid-July 2024, sellers will no longer automatically cover the commission for the buyer’s agent. Instead, buyers will be responsible for directly compensating their agents.
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Negotiation of Commissions: Eliminating mandated commission payments to buyer’s agents from sellers could make commission rates more competitive and negotiable. Buyers will need to discuss and agree upon fees with their agents directly, potentially leading to more varied commission structures and possibly lower overall costs. However, buyers must manage these costs upfront rather than rolling them into mortgage financing (The Mortgage Reports) (BCRE).
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Increased Transparency and Choice: The settlement mandates more transparency in agent compensation and allows buyers and sellers greater freedom to negotiate commission rates. This could encourage competition among agents, as buyers shop around for the best rates and services, similar to how they might compare mortgage options (BCRE).
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Potential Challenges for Buyers: Some buyers, especially first-timers, might find the direct payment of commissions challenging. This upfront cost cannot currently be financed with the mortgage, which might affect affordability and the choice of agent for some buyers (InvestorPlace) (BCRE).
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Impact on Sellers: Sellers might benefit from not having to pay the buyer's agent commission, which could lead to cost savings. However, the market dynamics might change, with buyers potentially requesting concessions to cover these fees, affecting negotiation leverage (InvestorPlace).
Overall, these changes are intended to make the market more competitive and transparent, potentially lowering costs for consumers. However, they also introduce new complexities that buyers and sellers will need to navigate.
*All Real Estate commissions are negotiable.