Understanding the Changes to Real Estate Commissions
To help explain these new changes, let’s first look at how commissions were paid before August 17, 2024.
Before August 17, 2024
When a seller wanted to list their home, they would sign a Listing Agreement with their agent, agreeing to pay a commission to the agent’s brokerage. The brokerage would then share part of that commission with the brokerage representing the buyer. This shared commission was advertised in the MLS (Multiple Listing Service) for other agents to see.
After August 17, 2024
Now, things work a bit differently. Brokerages can no longer share commissions. Going forward, a buyer will have to include their agent’s compensation amount in their offer to the seller and it can be negotiated, just like any other terms of the offer.
Setting Buyer Agent Commission
As a buyer, it’s important to interview potential agents to understand the services they offer, what sets them apart, and whether they are the right fit for you. Once you’ve chosen an agent, you’ll be required to sign a Buyer Agency Agreement before you can start viewing homes. This is now a legal requirement.
The agreement will clearly outline your buyer agent’s fees. If the seller doesn’t cover the full amount of these fees, you may be responsible for paying the difference. This is why it’s crucial to discuss and agree on commission details with your agent before making an offer.
Effects on Buyers:
- Increased Cost Awareness:
- Buyers will have a clearer understanding of the costs associated with hiring a buyer’s agent, which may lead them to negotiate commissions or choose an agent based on the services offered rather than just the cost.
- Potential Out-of-Pocket Expenses:
- If a seller does not offer a commission to the buyer’s agent, buyers may need to pay their agent out-of-pocket. This could lead to higher upfront costs for buyers, although it may also allow for more flexibility in negotiating the overall purchase price.
- Enhanced Negotiation Power:
- Buyers can now negotiate their agent’s commission, which might lead to lower overall costs. However, they will need to balance this with the quality of service they expect from their agent.
- Impact on Agent Selection:
- The changes may prompt buyers to be more selective when choosing an agent, focusing on the value of the services provided rather than just the commission rate.
Final Thoughts
When dealing with a transaction as significant as buying a home, having an expert by your side is invaluable. The agent you choose can make all the difference in your home-buying journey. A great agent does much more than just show you homes; they go above and beyond to ensure you’re protected and informed throughout the entire process. They’ll guide you through the home selection process, provide insight on locations and neighborhoods, assist with your mortgage approval, write a compelling and competitive offer, manage contract contingencies, provide support during the home inspection process and handle so much more to ensure a smooth and successful experience. You really do deserve to have an expert on your side and I am happy to have a conversation anytime. Reach out today to learn more.
To read more about how these commission changes impact sellers, read this: Commission Update- Seller Version
