New Real Estate Rules Changed the Home Buying and Selling Process! Embrace the Change

Starting Saturday, August 17, 2024, new rules were put into effect in the residential real estate market, bringing changes that could impact anyone looking to buy or sell a home. These updates stem from a recent legal decision by the National Association of Realtors (NAR) regarding how real estate agents are compensated. The focus of these new rules is on enhancing transparency around realtor compensation and how it is communicated to buyers, sellers, and the public. While the overall process of buying and selling a home remains unchanged, the way compensation is handled will see significant adjustments.

A Shift in Realtor Compensation Transparency

Traditionally, when a home is sold, the seller pays a commission, typically between 5% and 6%, which is then split between the seller’s agent and the buyer’s agent. While commission rates have always been negotiable and disclosed in the listing agreement, some have argued that it is unfair for the seller to cover the cost of the buyer’s representation. This concern was a key factor in prompting the recent legal changes.

Real estate transactions are complex, involving numerous steps that require expert guidance from real estate agents to ensure a smooth and stress-free process. These professionals are trained to represent the best interests of their clients, whether they are buying or selling, and to clearly communicate the value they bring to each side of the transaction. It is important to note that in real estate, the terms "broker" and "real estate agent" are often used interchangeably, though all compensation ultimately goes to the broker, who then pays the agent.

What Sellers Need to Know

For sellers, the new rules introduce changes to the listing agreement. A key addition is a section that allows the ability for sellers to offer either a specific amount towards a buyer’s representation or no amount at all. Sellers have always had the option to decide whether they want to contribute to the buyer’s expenses or not; the new form explains it more clearly. The choice is entirely in the sellers’ hands.

The primary responsibility of a listing agent remains the same: to market the property effectively and sell it in a timely manner. However, under the new rules, listing agents must use updated forms that make it clear that sellers are not obligated to offer compensation to the buyer’s agent. It's important for an informed listing agent to communicate and make sellers aware that about 94% of homebuyers work with an agent, and choosing not to offer compensation could limit the pool of potential buyers. Ultimately, the decision to offer compensation is up to the seller.

Traditionally, compensation details were included in the Multiple Listing Service (MLS). With the new rules, if compensation is not offered through the MLS, the buyer’s agent may need to be informed through other channels, such as phone, text, social media, or signage.

What Buyers Need to Know

For buyers, the changes introduce new forms that clearly state how their agent will be compensated. One of the most notable updates is that buyers will now be required to sign an agreement with their agent before starting the home viewing process. Recognizing that this could make some buyers uneasy, a short form has been introduced that gives buyers the option to pay their agent for showing services only or to work with the same agent throughout the entire transaction. The buyer and agent must agree in writing, on how much the agent will be paid.

Despite these changes, the process of getting pre-approved for a mortgage remains a top priority. A good real estate agent will continue to help buyers find the right lender to suit their needs.

Navigating the Changes

For both buyers and sellers, this is an ideal time to have a conversation with your real estate professional to get your questions answered and to understand the new rules. While change can be uncomfortable at first, gaining a clear understanding of these updates and the reasons behind them will make the transition smoother.

Buying or selling a home is often the largest financial transaction a person will undertake in their lifetime. Consulting a knowledgeable real estate professional to guide you through the process is invaluable, especially in the context of these new rules.