New changes in residential real estate practices, effective Saturday, are expected to introduce unfamiliar processes for buyers and sellers due to a 2023 legal decision regarding real estate agent compensation.
Traditionally, sellers paid a commission (typically 5-6%) that was split between their own agent and the buyer’s agent, but critics argued that this arrangement kept commissions high and unfairly required sellers to cover both sides. The ruling aims to address these concerns by altering how agents are compensated and introducing more negotiation options into the process.
Under the new rules, sellers will now decide whether and how much to pay a buyer’s broker, but this information will no longer be shared through the official multiple listing service (MLS). Instead, compensation terms may be communicated informally through personal contacts or social media.
Buyers will also be required to sign a broker agreement, explicitly stating how much their agent will be paid, which is a shift from previous practices. These agreements will ensure transparency and negotiation over broker fees, a change some agents see as an opportunity to highlight the value they bring to transactions.
However, the changes are leading to some confusion among agents and consumers. Real estate professionals are grappling with scenarios like buyers running into financial limits on broker compensation or sellers offering to pay the buyer’s broker as a negotiating tactic.
Although the rule changes are designed to increase transparency, some agents feel that they have only added complexity, particularly when determining commission rates for individual listings.
There are concerns about the potential negative impact on first-time buyers who may struggle to afford a broker’s commission on top of the home purchase price. Critics worry that inexperienced buyers may forego professional representation, which could complicate the transaction process and leave them vulnerable.
Despite these challenges, industry leaders believe that the market will adjust to the new rules, but it may take time before the full effects are understood.
Looking ahead, some experts predict significant shifts in the industry over the next few years. While immediate impacts may be minimal, the legal ruling is seen as a turning point that could lead to long-term changes in how real estate transactions are conducted.
Some agents are leaving the industry due to the increased complexity, but others believe that a smaller pool of agents could drive down commission rates and streamline the market.
