You might have caught a news story or read an article detailing the new changes in the real estate industry. Perhaps you just perused the headline and don’t understand what the changes are or how they will affect you. For example, CNN’s headline reads, “Biggest shakeup in a century set to hit real estate agents this week.” Additionally, their first sentence in the same article says, “Realtors…are bracing for a seismic shift in the way they do business.” From their reporting, you sense that this is earth-shattering news. But is it? Today we will explain the changes in the real estate industry without hyperbole as well as why they were made.
Why Change?
“If it ain’t broke, why fix it?” For years, the seller covered the commission of both the listing agent as well as the buyer’s agent. The commission rate has always been negotiable, but the standard amount was typically 6% based on the selling price of the home or property. Then that amount was split between the two brokerages.
The National Association of Realtors (NAR) was sued. “The lawsuits allege that the NAR and brokerage firms unlawfully conspired to raise, fix or maximize the commissions earned by real estate agents — in particular, by requiring that all listing brokers communicate an offer of compensation pursuant to the cooperative compensation rule.” The NAR reached a joint settlement agreement this past March for $418 million.
As part of the settlement, changes had to be made to “empower consumer choice through transparency.” These changes go into effect on Saturday, August 17th.
Changes for Buyers
The biggest rule changes affect buyers. First, you must now have a written agreement with their chosen brokerage before touring a home. This rule applies even before touring a home virtually. Commission rates remain negotiable, but now the buyer might have to pay their agent in addition to purchasing the property. It will no longer be standard that the seller covers this cost. This rule will greatly affect the affordability of a home for the buyer. According to current regulations, the commission is not allowed to be financed in the home’s mortgage.
Changes for Sellers
As stated before, sellers only have to cover their agent’s commission. However, they can choose to cover the buyer’s agent, but this fact cannot be communicated on the Multiple Listing Service (MLS). Agents will have to communicate this to other agents using different means.
To see a clear visual explanation of these changes, click here. There is no doubt that these changes will affect the real estate industry. However, will it be seismic? I think it depends on your agent. Choosing a level-headed, experienced agent is key. Someone you can talk to and trust. Someone like Mike Goins. Call him with any concerns. He will be happy to explain the changes in his own words.