Real estate changes abound right now! Much of the industry in the U.S. has had to pivot on a number of practices regarding how buyer agents are compensated, how home buyers and the public work with real estate professionals, how home sellers compensate real estate licensees, and much, much more.

Why did everything change?

These real estate changes are a result of a settlement between the Department of Justice (DOJ) and the National Association of Realtors (NAR), and will affect Realtors and their clients nation wide.

In a nutshell, the real estate changes primarily involve how buyer’s agent commissions are paid so that it’s no longer negotiated between the sellers and their listing agent, and is no longer bound to multiple listing service (MLS) rules. The DOJ determined that the old way was “anti competitive”. They want it to be more competitive. As of August 2024, the responsibility to pay the buyer’s representative is now negotiated between the buyers and their agent, and the buy-side commission has become another who-pays-what term in the purchase contract.

Highlights of the real estate changes

The fallout from the settlement has translated into new practices and new paperwork for Realtors across the USA.  Last month we had a deluge of new and edited forms, so we and many of our real estate colleagues have been attending an inordinate amount of training sessions lately to prepare for the new systems which went into effect on Aug 17 (there were many updates leading up to that date as well) with the California Association of Realtors, our local MLS, and the upcoming changes in legislature (new laws on this topic are anticipated Jan 1, 2025).

• Sellers are no longer obligated by the MLS to offer or pay a buyer agent fee. This has been optional with our local MLS for a while, though in other areas they apparently had required minimum compensation. Today, practically any language referring to compensation, whether or not the seller is willing to cover that cost, cannot be published on the MLS at all.
• Sellers can, if they choose, still pay the buyer’s agent’s fee, but they must agree to it in the purchase contract and pay the buyer’s agent directly and not indirectly through the listing agreement as a split of the listing agent’s commission (the old way). The commission is not negotiated in the purchase contract, but who pays the commission is a negotiation in the purchase agreement.
  • The willingness to pay the buyer agent’s fee cannot be advertised on the MLS or anywhere linked directly to the MLS, but it could be on a rider sign, on a flier, in the disclosure package IF the disclosure link is not on the MLS, and so on.
• Buyers will need to sign a buyer representation agreement and form a contract with a real estate agent before seeing homes, getting guidance from the agent(s), recieve disclosure forms, etc. Some companies and associations of Realtors may have or create their own forms for this purpose. Like a listing agreement does with a seller, the buyer representation agreement establishes the agency relationship, the amount that the buyer agent will be compensated, and the length of time of the agreement (3 months max with the CAR forms). Again, the responsibility to pay the buyer’s agent is on the buyers, but that may get transferred to the seller as a negotiable term of the purchase agreement. Importantly, the buyer’s agent may not be paid more or less than the amount in their buyer contract no matter what amount the seller is willing to pay in the purchase agreement.
• Open house visitors will be asked to sign “non agency” forms. The host will ask guest and potential buyers to sign a brief disclosure that the agent present during the open house is not their agent and is acting on behalf of the seller. The reason for this is to make sure that everyone’s clear that the open house host, usually the  listing agent, represents the seller and the seller alone, and to avoid implied agency.

How does this impact home sellers?

Sellers now have more options than they did prior to the change on August 17th. Rather than decide when signing a listing contract with their own agent how much the compensation to the buyer’s agent will or may be, they can wait and review offers and see what’s being requested in the purchase agreement. From there they could accept, reject, or counter the compensation – just like any other item in the buyer’s purchase offer.

Knowing that buyers don’t have infinite cash to put toward a home purchase, listing agents are likely to encourage a seller to take responsibility for the buyer agent compensation since doing so will make buying the home possible for more home buyers. For example, if a buyer has exactly 20% down plus the reserves and closing cost, but no more, asking that buyer to cover their agent’s fee might be a deal breaker. Another approach is to put the sale price where the seller’s net is acceptable, and cover that buyer agent fee as part of that higher price. Then the fee is financed, essentially.

A rule of thumb with home buyers is simple: confident buyers pay more than buyers who have significant concerns. That’s why we encourage pre-sale inspections and thoughtfully completed disclosures, and sometimes even bids so that there’s transparency in the home being sold. If buyers feel confident that the commission for the buyer agent will be covered by the seller, they may be willing to bid a little higher, because that fee won’t be pulled from their available funds, which are limited.

A nice side-effect for sellers is knowing that home buyers who are privately shown their home are serious enough to have some kind of written contract with their buyer agents. (At open houses there’s a sign in sheet, and as always, not all visitors are actually in the market to buy a home.)

A strange side effect is that the buyer agent compensation will no longer be a data point on the MLS. It used to be published, and we could factor that in to valuations. This is a loss of transparency that I hope will get corrected in the future, but it may be this way to stay. In that case, we Realtors will be making phone calls to try to learn about that from our colleagues, and wise appraisers would be doing the same thing.

Real estate changes for home buyers

The real estate changes when buying a home are significant and potentially scarier than what the seller feels about all of this.

Home buyers are now asked to sign a contract upfront with their buyer agent(s). While that was already required in 18 states, it wasn’t required here in California, so that’s a big change. The contracts will be for a set period of time (not to exceed 3 months), for a set price or percentage (or other formula) for compensation. And these agreements can be exclusive or non-exclusive (just like listing contracts with sellers can be exclusive or not).

Perhaps scariest of all is their commitment to paying their own agent’s fee if the seller is unwilling or unable to do so.

Further, now they are told that they need to sign in at open houses if they go without their agent. Many of these aspects are covered in more depth in the page linked at the beginning of this paragraph on our popehandy.com site.

Something to keep in mind is that there are choices at every turn. If a home buyer wants a house or condo where the seller will not pay the buyer agent fee, that buyer can simply pass on the home and find another one to buy.

Conversely, if a buyer has the cash, we are hearing some clients say that they’d prefer to pay their agent directly as it will result in a lower sale price and lower property taxes. Some see this option as a plus.

Other thoughts

We have had a sea change in how homes are bought and sold, and these real estate changes have impacted consumers nationwide. During this period of adjustment, there could be some confusion and some stumbling blocks, and the practice will likely get tweaked over time and experience. There are differences in interpretation from one MLS to the other as various professional groups evaluate how to implement the requirements.

We expect the law to follow suit as of January 1st 2025.  At this point I’m not sure how much of the current practice will be enshrined in law, and hopefully there won’t be any conflicts between the settlement results and any new laws.

Please keep in mind that consumers are continuing to buy and sell, and that those of us in the industry are not sitting on the sidelines and waiting for the dust to settle. There are opportunities now, and it may take a couple of years for everything to settle down, so we are not encouraging anyone to wait. If now is the right time for you to buy or sell, go for it. But as always, hire well!