The residential real estate industry is getting an overhaul

August 19, 2024

Starting August 17, new laws surrounding real estate commission structures for buyers, sellers, and agents in the United States went into effect following a landmark $418 million settlement with the National Association of Realtors, reports Entrepreneur.

Specificaly, the standard 5% or 6% starting commission sellers usually pay will no longer exist. This means that agents, brokers, and Realtors who will no longer be subject to receiving an automatic commission payment for selling a home.

Agents can negotiate with the seller for their rate. Some experts predict commissions will fall to 4%.

“These changes help to further empower consumers with clarity and choice when buying and selling a home,” NAR President Kevin Sears said in a statement. “I am confident in our members’ abilities to prepare for and embrace this evolution of our industry and help to guide consumers in the new landscape.”

What does the NAR ruling change?

Now, real estate agents are prohibited from disclosing compensation on more than one listing service—but can share those details on other mediums, including on the phone and in person.

According to economists’ analysis earlier this year, real estate commissions for agents are estimated to drop by as much as 30%.

Real estate agents often split the commission with a buyer’s agent. Now that there is no standard commission, buyers’ agents must discuss compensation upfront in a buyer agreement before looking at properties together. This way, the potential buyer knows upfront if they have to pay their realtor or if the seller of the home they’re looking to purchase is covering the cost.

Some realtors are warning that this could lead to more buyers waiving a relationships with a a real estate agent altogether, which could lead to more added costs for buyers. Others contend that the seller’s commission was often “baked” into the sales price, which already inflates the cost for buyers.

The new laws go into effect just days after mortgage rates in the United States hit a 15-month low.

“Change is nothing new to the real estate industry. What I know for sure is that real estate brokerages and their agents are some of the most resilient people in the world,” real estate tycoon Barbara Corcoran said of the settlement.

“They’re creative and tough, and this opens the door for agents to use that resilience and creativity to come up with new and better ways to service their home sellers and customers.”

Research contact: @Entrepreneur