What do these real estate commission changes mean and how can you make informed decisions as you navigate the new commission rules?

The real estate landscape has undergone a significant shift following the National Association of Realtors (NAR) settlement on August 17, 2024. The settlement introduced groundbreaking changes to how real estate agent commissions are handled, empowering buyers with new opportunities—but also new responsibilities. As the dust settles, understanding the implications of the NAR settlement is crucial for anyone navigating today’s housing market. From negotiating buyer agent agreements upfront to reevaluating commission dynamics, this blog is your guide to thriving in this new era of real estate.

The Background

To anyone who hasn’t purchased or sold a home before, this is the inside baseball for how real estate agent commissions worked prior to August 17th, 2024: Buyers would meet a buyer’s agent and the agent would send buyers relevant homes for sale. Once the buyers were ready, the agent would begin scheduling showings—no contract or upfront negotiation required. The buyer’s agent could see the amount being offered by the seller on the MLS. (For those of you who may not know, MLS stands for Multiple Listing Service and is the portal that real estate agents use to search for properties and schedule showings. There are over 600 regional MLSes throughout the U.S.)

If the seller’s real estate agent was so inclined, they could negotiate a 6% commission with the seller and then split the commission unevenly, i.e. 3.5% for the seller’s agent and 2.5% for the buyer’s agent, or even a 4%/2% ratio. Buyers and buyers agents had no way of knowing whether the split was due to a seller only offering a total commission of 4% or 5% or whether it was a seller agent directive.

All of that boils down to this: not all homes offered the same buyer agent commission, and buyer agents could see that.

Why is this important?

A range of offered commission quantities creates a natural incentive for buyer’s agents to steer clients toward those properties with the highest commissions first, regardless of the properties’ alignment with their clients’ needs. (Hey, we’re only human, and $15,000 is better than $10,000). It’s worth noting that those commissions were not disclosed to buyers themselves, which meant that buyers wouldn’t have the wherewithal to negotiate the buyer agent’s commission down in favor of saving money on the purchase price.

Removal of the buyer agent commission from MLS websites is one of two critical modifications that resulted from the NAR settlement.

Currently, buyer’s agents don’t know the size of the commission being offered for each property, or if the seller is offering a buyer agent commission at all. However, unlike past transactions where commission were set in advance, commissions are now being incorporated into the property negotiations just like price and seller credit.

This is where the work begins for buyers.

The second requirement from the settlement is that buyers agents and prospective buyers must sign a written buyer agreement in advance. This means that buyers will have to determine how much they’re willing to pay their agent before touring houses. The result of this is that buyers must also possess the funds to pay their agent’s commission out of pocket if the seller is unwilling to accommodate buyer agent commissions.

When you’re ready to buy a house, what should you do?

• Have a number in mind that you’re willing and able to pay. Look up the value of properties in the area and determine whether 1-3% is reasonable. For example, in areas where property values are lower, an agent may not work for less than $3,000. In locations where property prices are astronomical, 1% might be sufficient. If you’re fearful of causing offense with a lowball figure, you can always ask about the agent’s fee structure as part of the vetting process.
• Interview multiple agents. Let them compete for your business on both price and service.
• Get the agreement in writing.If you’re going with a tiered structure, make sure that it’s documented in your buyer representation agreement. Specific contracts will vary by state and brokerage so make sure you read the fine print.

Here’s an example of an agreement that you might make with an agent.

Let’s say you’re searching for an $800k house where the standard commission prior to 2024 was 2.5%, or $20,000. Let the buyer agent know the most you’re willing to pay out of pocket, i.e. $7,500. If the seller offers a commission, you’ll reduce the amount you’ll pay out of pocket according to the tiers below.

Commission Offered from Seller	The Terms
Less than $2,500	You pay $7,500 and the buyer agent keeps the commission, if any is offered.
Between $2,500-$10,000	The payment from you gets reduced dollar for dollar until the agent’s commission reaches $10k.
Between $10,000-$15,000	You pay nothing and the entire amount goes to the agent.
$15,000 and above	Anything over $15,000 is rebated back to you.

If the agent balks at $7,500, you can also offer to pay an hourly rate with the understanding that everything is to be accounted for in 10 minute increments, with max out of pocket of $9,000. Given that the ceiling is lowered for the agent, this type of agreement raises the floor and reduces the risk that the agent will receive nothing for their time. Everything else about the tiered structure can remain the same.

A Note About Agents

Most agents aren’t raking in the dough when it comes to commissions. A study conducted by the Consumer Federation of America revealed that the median agent only sells two homes annually. Agents are required to be affiliated with a brokerage, with whom they have to split their commissions, which can range anywhere from 10-30%. On top of that, agents are independent contractors without company benefits like insurance, 401k matching, etc. All that to say: Agents are just trying to put food on the table for their families. They take home a small fraction of what you see on the closing documents.

For years, agents have received a bad reputation for being overpriced and/or underdelivering. However, there are caring, competent agents that provide valuable guidance throughout the transaction. With these new regulations leveling the playing field, how much that value is worth is up to you to decide.