Likely and unlikely outcomes of selling a house under the new rule.

bobcat

bobcat

Well-known Member
Location
Northern Calif
The old agreement was for the seller to pay for the seller's commission and the buyer's commission. That is now going away. All new listing contracts will state zero commission going to buyer's agent. After all, why should a seller pay for an agent who is hired buy a buyer to do their bidding. However, it presents problems.

A buyer's agent is going to want to know how they will get paid for their services of showing houses and writing up an offer. So if a buyer wants to use an agent to show them houses, they will have to pay the agent up front (Likely costing thousands), but why do that if they don't find a house they like, and they will be out that money.

The buyer's could just go online, find a house they like, contact the listing agent, and ask to see the house. Then if they want to make an offer, they could enlist a real estate attorney or an agent for a lesser fee to draw it up. The potential buyer could even order their own inspections. However, this would still require at least a couple thousand to get done, with no guarantee of having their offer accepted.

The seller could negotiate with the buyer to cover the cost of the buyer's agent, IF the offer is closer to the asking price or above it, in which case the extra cost for the buyer would just be folded into the new mortgage (Assuming the bank is OK with it not being above the appraised value). But still, the offer needs to be drawn up, which will require someone to be paid before any deal is reached, and eventually reimbursed.

Any thoughts on how this will shake out?
 

@bobcat, is this rule in your state? That sounds like it will make it more convoluted than it already is to deal in real estate as a layman.

Real estate fees in Ohio are around 5.99% of the sale price. If there are two realtors involved, they split that commission. If your realtor is representing you & the buyer, they get the entire amount.

After selling several houses when family members have passed, I can tell you that personally I feel they have earned their money. Each sale was different from the others :eek:. I've used the same lady each time & would use her again without hesitation. She kept us sane.

We also used her to buy one house for a SIL. There are too many things involved in buying a house that I wouldn't want to go it alone. It sounds like it you are going to have to have a knowledge of real estate laws yourself or pay through the nose even more when trying to buy a house.
 
I wasn't exactly sure what the context of this was, so I looked it up. For anyone else that wasn't sure about it, here's some background.

There was a lawsuit against the National Association of Realtors which they lost. In the past, the NAR forced the buyer's agents to split the commission with the seller's agent in compensation for using the multiple listing service (MLS). That practice is now disallowed. The seller's agent can still negotiate with the buyer's agent to compensate them the commissions but it must be in writing to the seller. All negotiated commissions percentages need to be in a written contract. Enforcement starts in July 2024.

Rules that helped set real estate agent commissions are changing. Here's what you need to know

https://www.npr.org/2024/03/15/1238...n-real-estate-housing-buyer-seller-settlement

I'm surprised that the commissions weren't in written contracts before, but I'm guessing they were written up after the sale was already in progress which would make it harder for the seller to walk away.

Possible outcomes? If sellers are paying less commissions, they might be more motivated to sell. They'd get more money on the sale. For buyers who already have houses, they could base the commission off the price of their house, contingent on if it sells so it's less risk to them. The first time buyers are the people who would feel the squeeze. With more motivation to both buy and sell, the market might get more active, raising the prices of housing until the dust settles.
 
caramel said:
I'm surprised that the commissions weren't in written contracts before
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They always have been, for quite a long time.
First there's a listing agreement, negotiated between the agent and the seller. Then there's a sales agreement
prepared between the selling (buyer's) agent and the buyer, which is presented to the listing agent and the seller.

caramel said:
"Under the proposed NAR settlement, a broker who represents a seller would no longer be allowed to include a blanket offer of cooperative compensation to a prospective buyer’s agent when they advertise the property on NAR affiliated Multiple Listings Services"
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There has always been quite a bit of latitude given to the designated brokers when setting their standard commissions.
For example many brokers tended to promote a 6% commission as though it was standard, but it never was.
The commission between the listing broker and the seller has always been negotiable, and likewise with buyer's agreements.

caramel said:
"This is meant to remove any incentive from a buyer’s agent to steer their client away from home listings that don’t include a cooperative compensation offer."
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As the designated broker for my own company, I set and advertised my commission as being 4.4% instead of the "standard" 6%.
This resulted in a certain amount of snobbery from some of the other agents and brokers. During an open house on one of my listings,
another broker came through to look at the house, then turned to me as he was leaving and said he'd never show it because the commission
was too low. I told him that was fine with me as I planned to sell it myself anyway, and I did.

His company of 30+ agents only sold 8% of their own listings, and I sold 50% of my listings myself.
I've been retired from real estate for quite awhile now, but the new ruling would have been fine with me anyway.
 
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John cycling said:
As the designated broker for my own company, I set and advertised my commission as being 4.4% instead of the "standard" 6%.
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Since the general rule was that 3% went to the seller's agent and 3% went to the buyer's agent, did the buyer's agent get the 3% and you got 1.4%? Or how did that work?
 
caramel said:
Since the general rule was that 3% went to the seller's agent and 3% went to the buyer's agent, did the buyer's agent get the 3% and you got 1.4%? Or how did that work?
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That was never a rule, as each broker always had the right to set and negotiate their own commissions.
However the larger companies tried to give the impression that the 6% was standard, which it never was.

My agreements were written that 2.2% went to the seller's broker (me), and 2.2% to the buyer's broker.
That's why that other agent said he wouldn't show it, because the company he worked for would "only" get 2.2%,
and since he was just an agent who worked in that company, he'd only get a fraction of that, maybe 70% of the 2.2%.

Since I sold 50% of my listings, 50% of the time I'd represent both the seller and the buyer and get the full 4.4%.
 
In PA, the vast majority of real estate agents are paid 6% to sell the home. Their commission is divided between the listing agent and the selling agent. Each receive 3%. The buyer pays 0%. Only the seller pays the 6%.

Additionally, the buyer and the seller each pay a 1% sales tax. Right now, here where I live, inventories of homes for sale are very low and this has produced bidding wars. A home that would normally sell for $300,000 may sell for as much as $450,000. Our home is valued at $700,000, but we were offered $800,000 for it late last year. We declined the offer and removed the home from the market after pricing how much the movers wanted. Their prices have gone up tremendously.
 
@bobcat I cannot imagine buyers paying agents up front just to look at homes. They can just call the listing agent and if that agent is half-way competent, they will show the home.

I think the way it will shake out is that more and more listing agents will be representing both parties. That's fine, but there may possibly be more Realtors sued in the future, from either the Seller or Buyer saying they were not fairly represented. That means malpractice insurance will be wanted by agents if they don't have it now.

I think getting a listing will become even more fiercely competitive than it is now.

ON THE OTHER HAND, some brokerages might decide to make up their own new model of compensation for their agents. Like, maybe they could assure all agents they hire that they will always get a bare minimum of compensation from split commissions, like the way waiters at restaurants have to share the tips. If the listing agents don't like that arrangement, they can go work elsewhere that still has the old model, right?

Another option: A savvy buyer can simply tell their agent up front, "I only have enough savings to cover the down payment and closing costs but I really want this property. You will have to specify in the contract that the seller's agent needs to share the total commission with you - 40/60 split, 50/50, whatever, 30/70, whatever."

This will, of course, make that Buyer's agent not like that Buyer so much and maybe not work very hard for them, but I'm sure some Buyers will do that.

Personally, I really hope this change leads to all agents being paid MINIMUM WAGE for the hours they work, which they would have to keep track of for their brokers with an app, or actually always come into the office and clock in/clock out. Then any commissions they share would be on top of the hourly wage.

That's what I would like to see. We'll see if any brokers respect their agents enough to pay them minimum wage.

BTW, I was talking to a guy once who worked at CarMax and he said that's their pay structure: they get an hourly wage and then a portion of the commission of every car they sell. The other portion goes to the top to pay for office expenses and manager salaries.

CarMax sells their cars at pretty high prices to compensate for all this fair pay, so while the NY Times predicts housing prices will drop under the new structure, I have my doubts about that, especially in wealthy places like California and NY.

I think an even more fierce bidding war for homes is going to happen in some states, and the Realtors, Consumer Protection agencies, and both major political parties will be fine with that.

As usual, no one will care about the lower end of the housing market. Same old story: money will be the loudest voice in the room.
 
VintageBetter said:
@bobcat I cannot imagine buyers paying agents up front just to look at homes. They can just call the listing agent and if that agent is half-way competent, they will show the home.

I think the way it will shake out is that more and more listing agents will be representing both parties. That's fine, but there may possibly be more Realtors sued in the future, from either the Seller or Buyer saying they were not fairly represented. That means malpractice insurance will be wanted by agents if they don't have it now.

I think getting a listing will become even more fiercely competitive than it is now.

ON THE OTHER HAND, some brokerages might decide to make up their own new model of compensation for their agents. Like, maybe they could assure all agents they hire that they will always get a bare minimum of compensation from split commissions, like the way waiters at restaurants have to share the tips. If the listing agents don't like that arrangement, they can go work elsewhere that still has the old model, right?

Another option: A savvy buyer can simply tell their agent up front, "I only have enough savings to cover the down payment and closing costs but I really want this property. You will have to specify in the contract that the seller's agent needs to share the total commission with you - 40/60 split, 50/50, whatever, 30/70, whatever."

This will, of course, make that Buyer's agent not like that Buyer so much and maybe not work very hard for them, but I'm sure some Buyers will do that.

Personally, I really hope this change leads to all agents being paid MINIMUM WAGE for the hours they work, which they would have to keep track of for their brokers with an app, or actually always come into the office and clock in/clock out. Then any commissions they share would be on top of the hourly wage.

That's what I would like to see. We'll see if any brokers respect their agents enough to pay them minimum wage.

BTW, I was talking to a guy once who worked at CarMax and he said that's their pay structure: they get an hourly wage and then a portion of the commission of every car they sell. The other portion goes to the top to pay for office expenses and manager salaries.

CarMax sells their cars at pretty high prices to compensate for all this fair pay, so while the NY Times predicts housing prices will drop under the new structure, I have my doubts about that, especially in wealthy places like California and NY.

I think an even more fierce bidding war for homes is going to happen in some states, and the Realtors, Consumer Protection agencies, and both major political parties will be fine with that.

As usual, no one will care about the lower end of the housing market. Same old story: money will be the loudest voice in the room.
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Well, from what I've learned since posting this is that when a buyer approaches an agent to show them homes, that agent has them sign a contract (Approx 4 months) stating that, if a home is found and the buyer decides to buy it, they have to pay the agent a fee set in the contract (Usually about 2.5%) for being their agent (Negotiations, coordinating inspections, working with Title company, good faith money, explaining all contracts and disclosures, (Usually around 40 pages), and advising.

All this means that, either a buyer has to pay the agent out of their own pocket, or find homes where the seller is willing to pay the buyer's commission in exchange for a better offer than they would normally accept. For example: If a home is listed for $599,000, and the seller would have accepted an offer of $579,000 to close the deal, instead, the buyer would offer full price, with the condition that the seller pays for the buyer's commission. This way the buyer agent fee is just folded into the mortgage (Not the most economic way to do it), but if the buyer doesn't have 15 grand at their disposal, it is a solution, as long as the house will appraise high enough to satisfy the mortgage lender.

A listing agent could show the home to a prospective buyer, and if the buyer wants to make an offer, the listing agent could act as a dual agent, although it's a dicey proposition, and most would choose to hand off the buyer to another agent in their brokerage, so a portion of the commission still stays in house, but there is no conflict of interest.
 
bobcat said:
Well, from what I've learned since posting this is that when a buyer approaches an agent to show them homes, that agent has them sign a contract (Approx 4 months) stating that, if a home is found and the buyer decides to buy it, they have to pay the agent a fee set in the contract (Usually about 2.5%) for being their agent (Negotiations, coordinating inspections, working with Title company, good faith money, explaining all contracts and disclosures, (Usually around 40 pages), and advising.

All this means that, either a buyer has to pay the agent out of their own pocket, or find homes where the seller is willing to pay the buyer's commission in exchange for a better offer than they would normally accept. For example: If a home is listed for $599,000, and the seller would have accepted an offer of $579,000 to close the deal, instead, the buyer would offer full price, with the condition that the seller pays for the buyer's commission. This way the buyer agent fee is just folded into the mortgage (Not the most economic way to do it), but if the buyer doesn't have 15 grand at their disposal, it is a solution, as long as the house will appraise high enough to satisfy the mortgage lender.

A listing agent could show the home to a prospective buyer, and if the buyer wants to make an offer, the listing agent could act as a dual agent, although it's a dicey proposition, and most would choose to hand off the buyer to another agent in their brokerage, so a portion of the commission still stays in house, but there is no conflict of interest.
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Buyers do not have to sign a contract with an agent to have them be their Buyer's agent. https://listwithclever.com/real-estate-blog/7-faqs-about-buyer-agency-agreements/

I do not think that will change at all because what if you find a FSBO, or you find the perfect home and you want to move on it quickly while your Buyer's Agent is tied up with other business and cannot write a contract for you until tomorrow, what will a buyer do? Sit around and wait? No - not going to happen in such a tough market.

Plus, four months is a very long time to be committed to one agent. If they turn out to be a bad agent, that's 1/3 of a year devoted to a bad agent. What you are suggesting is not going to happen, IMO.
 
VintageBetter said:
Buyers do not have to sign a contract with an agent to have them be their Buyer's agent. https://listwithclever.com/real-estate-blog/7-faqs-about-buyer-agency-agreements/

I do not think that will change at all because what if you find a FSBO, or you find the perfect home and you want to move on it quickly while your Buyer's Agent is tied up with other business and cannot write a contract for you until tomorrow, what will a buyer do? Sit around and wait? No - not going to happen in such a tough market.

Plus, four months is a very long time to be committed to one agent. If they turn out to be a bad agent, that's 1/3 of a year devoted to a bad agent. What you are suggesting is not going to happen, IMO.
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The link you have referred to is over a year old, and under the old system of selling homes. Here is how it's done under the current system.
MSN.

You can look for and find a home on your own without an agent, but unless you are fluent in legal speak and understand what you're signing (Over 40 pages worth of fine print), you may want to think 10 times about it.

You could just view a home and have a real estate attorney draw up the offer, but he or she is not going to show you homes, or handle negotiations, inspections, etc..., but it is do-able.

When you say it's not going to happen, I regret to inform you, it is happening.
Here is a quote from Real Estate News on the new rules:

Buyer agreements will be required​

Another big change coming in July is the use of buyer agency agreements. "We are now going from a strong recommendation to a mandate," an NAR rep said during the call.

NAR said that all MLS participants working on behalf of buyers "would be required to enter into written agreements with their buyers before touring a home."
 
Is this the site you are referring to?
Industry Decoded: It’s time for mandatory buyer agreements

This article above is opinion only. It is not a LAW. There is no law that says Buyers must sign a Buyer Agreement. Sure, agents can ask for this, but Buyers can say NO, just like a car dealer will take a person's drivers license in an effort to trap them at the dealership until they buy a car (has happened to me), but it's not a LAW.

What are agents going to do? Call the police to hold a gun on you until you sign?

I should have called the cops on the car salesman when he did that to me.

NAR has a mandate. So what? Again I ask, is NAR going to call the police every time a buyer decides just to let the listing agent handle both sides? Or, if the Buyer feels very confident, or would rather hire a lawyer at a flat rate to look through the Purchase Contract for them, maybe the buyer would rather do that?

I know business people HATE it when things change. OMG they hate it. This is why so many of them oppose raising the minimum wage.

Here. Here is an article that agrees with me. It will still be a Seller's market for at least a while especially in many overpriced markets: Changing realtor fees puts pressure on homebuyers.

Here's another expert who agrees with me - despite the changes, a "market correction" may not be on the horizon after all. Rules that helped set real estate agent commissions are changing. Here's what you need to know

It is all fine and good to quote NAR and say what they want out of this. But NAR is not God or the court and NAR doesn't control what Sellers will do. Sellers, traditionally, always want the absolute most out of the sale. Sellers have a tendency to inflate the value of their homes. They see that the home 3 doors down sold for $750,000 so they look at their dumpy place and say, "Mine too - as a matter of fact, I just installed new gutter filters, so let's price mine at $760,000."

They don't see that they still have the original 1964 windows, the drapes and window treatments are vintage 1989, and that maybe their yard is 1/3 the size of the other house.

What can NAR do to control these Seller habits? Not much. Unless they demand Sellers sign an Agreement for Mandatory Staging, which Sellers will have to pay for. That'll go over well. :rolleyes: In the meantime, many Sellers will continue to over-price their homes and many millions of Buyers still can't qualify for those prices.

Maybe we've just gotten ourselves into some stagflation with home prices, right? IDK. We'll see. But unless NAR is going to hire some hit men, what is going to stop Buyers from saying, "I want the right to switch agents at a moment's notice if this is not working for me"?

Then businesspeople will cry, "Oh these Buyers - they are so FLAKEY! Whatever happened to LOYALTY?"

Loyalty went out the American Dream window in the 1980s. You remember all the down-sizing of the 1980s, all the jobs that flew overseas and all the destruction of pensions.

That's what happened to loyalty. The business leaders killed it.
 
This is copied directly out of the NAR Settlement Agreement, so you can argue with them whether you believe it will happen or whether it's a law or just a pretend law.

"New rule about written agreements • NAR has long encouraged its members to use written agreements because they help consumers understand exactly what services and value will be provided, and for how much.• The settlement provides that MLS participants working with buyers must enter into written representation agreements with those buyers. • This change will go into effect in mid-July 2024. Implications for members and home buyers and sellers• After the new rule goes into effect:
MLS participants acting for buyers would be required to enter into written agreements with their buyers before touring a home.
These agreements can help consumers understand exactly what services and value will be provided, and for how much."

Buyers and sellers are not required to use an agent of the National Association of Realtors, or the MLS, for that matter. You can go rogue and do whatever you want on your own, and I wish you luck. But if you are going to use a NAR agent, you will be signing a contract, which is what I was trying to get through to you previously.
 
I actually didn't know exactly how this worked. When I bought and sold that house, I paid what I did to buy it (20%) down, and got what I got when I sold it. I didn't give it much thought.

I'm still looking for a mobile. Since I'm ticked off at my agent, I plan to call the listing agent if I see one online unless it's her listing or in her office (major company), I'll have to call her. She's very nice but I'm mad at her.
 
Remy said:
I actually didn't know exactly how this worked. When I bought and sold that house, I paid what I did to buy it (20%) down, and got what I got when I sold it. I didn't give it much thought.

I'm still looking for a mobile. Since I'm ticked off at my agent, I plan to call the listing agent if I see one online unless it's her listing or in her office (major company), I'll have to call her. She's very nice but I'm mad at her.
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Well, at least you can use whatever agent you choose to represent you, even if she is the listing agent.
If you find one you like, hopefully the seller may be willing to cover all or a portion of your agent's commission in a separate agreement outside of the MLS listing. If you don't have the money for your agent's commission, instead of offering less for the MH, you could offer the asking price, with the condition that the seller pay for your agent. Just a thought.
 
bobcat said:
Well, at least you can use whatever agent you choose to represent you, even if she is the listing agent.
If you find one you like, hopefully the seller may be willing to cover all or a portion of your agent's commission in a separate agreement outside of the MLS listing. If you don't have the money for your agent's commission, instead of offering less for the MH, you could offer the asking price, with the condition that the seller pay for your agent. Just a thought.
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Thank you for the advice!
 
In my state, real estate agents are not required by law to become Realtors. Many do, because joining has added benefits and gives them access to certification courses. But they don't have to join. Costs money to join, of course.

"MLS Participants" means they are Realtors.
Section 2: Definition of MLS Participant
What is a Realtor?
Realtor vs. Real Estate Agent: Key Differences All Home Buyers and Sellers Should Know

I don't understand the loathing to just working with the listing agent, especially if they have been in biz for a long time and are Realtors. Sure, if you're spending $500,000 or more, then I guess you really want your own agent.

But I'm tellin' ya, I'd much rather have you spend your time harping on all buyers to get a reputable home inspector prior to closing, and even spend the money on specialists if the general inspector finds issues that concern him but he's not a soils guy or a roofing expert. Especially for first time buyers!

All the wheeling and dealing in the world is not going to be of much comfort to a buyer when they discover after closing they have a severe drainage problem in the backyard, or find out their fence is 6" over the neighbor's property line and now the neighbor wants that moved.

But it's also important to note that when a person buys a home of any kind, they are buying a big responsibility. New or old, condo or house, stuff breaks. Having your own agent is not going to prevent stuff from breaking. Get a home warranty to help with that - which an agent representing both sides can easily ask the sellers to buy. It's quite customary for the sellers to buy a one-year home warranty in my state.
 
bobcat said:
Well, at least you can use whatever agent you choose to represent you, even if she is the listing agent.
If you find one you like, hopefully the seller may be willing to cover all or a portion of your agent's commission in a separate agreement outside of the MLS listing. If you don't have the money for your agent's commission, instead of offering less for the MH, you could offer the asking price, with the condition that the seller pay for your agent. Just a thought.
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all or a portion of your agent's commission in a separate agreement outside of the MLS listing

I have to wonder if NAR would call that ethical behavior?????
 
Remy said:
I actually didn't know exactly how this worked. When I bought and sold that house, I paid what I did to buy it (20%) down, and got what I got when I sold it. I didn't give it much thought.

I'm still looking for a mobile. Since I'm ticked off at my agent, I plan to call the listing agent if I see one online unless it's her listing or in her office (major company), I'll have to call her. She's very nice but I'm mad at her.
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Why are you mad at her?

Is she a Realtor and how many years has she been in business?
 

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