On August 17, 2024, a significant shift occurred in the world of real estate commissions, thanks to changes implemented by the Department of Justice (DOJ) and the National Association of Realtors (NAR). If you're a buyer or seller, please watch the video or read on to lean what you need to know about navigating today's real estate market.
The "Before Times": How Commissions Worked
Traditionally, the process seemed straightforward. Buyers would bring their funds to purchase a home they loved. The sale proceeds would go to the seller, who, in turn, would pay the broker. The broker then distributed these funds to the listing agent and the buyer's agent.
Although it appeared as though the seller was paying for the commissions, this wasn't entirely accurate. Sellers would calculate all transaction costs—home value, closing costs, and commissions—and "bake" them into the listing price before hitting the market. In reality, the buyer’s funds covered all these expenses.
Today’s Landscape: Buyer-Centric Commissions
With the new laws, the process has changed. Now, buyers and their agents sign an exclusive agreement upfront, which establishes the agent's commission rate. This ensures transparency but also shifts the focus squarely onto the buyer.
Buyers now cover the buyer’s agent commission in one of three ways:
- Direct Payment: Buyers pay their agent directly, as agreed in their contract.
- Seller Contribution: Sellers may still bake the buyer’s agent commission into the sale price, but this requires upfront negotiation.
- A Combination: Sellers might contribute a portion of the commission, with buyers covering any remaining balance.
While this new system emphasizes clarity and flexibility, it requires buyers to carefully plan their budget and negotiate terms with their agents and sellers.
Real estate transactions are evolving, and it's more important than ever to work with knowledgeable professionals who can guide you through these changes with confidence.
