ELI5 - who understands the change to real estate agent comp?

[tiki]

We bought our home several years ago, under the old system where buyers' and sellers' agents split 6% commission. I've read several articles on the new rules that go into effect today, and I still don't get it.

It seems like sellers' agents now don't have to pass a check to buyers' agents, and if that's the case, the buyer now needs to pay their agent as a separate fee on top of closing? What problem does this change claim to solve? To me it just seems more expensive and more complicated for buyers. 

(ETA: and I did read the linked article, which says it solves the problem of agents choosing which properties to show a buyer based on their %. That doesn't make sense to me in an era with Zillow and Redfin, though - there's no way our agent could have "hidden" a listing from us.) 

[scout8]

Broker here. You are correct, it's a pretty ridiculous change which "solves" a problem that never really existed. It stems from a class action lawsuit claiming that sellers were forced to pay commission to the buyer's agent.

Two things came out of the settlement:

1) Buyers must now sign an agency agreement with a buyer's agent before looking at a house. In my area, this agreement includes a section that specifies that if the seller or listing agent is not paying the co-op fee, the buyer will pay it.

2) MLS listings are no longer able to advertise a co-op commission. Sellers/listing agents can still pay one, but they can't put it on the MLS anywhere. So, a buyer's agent will need to find out if the seller or listing agent is offering a co-op commission. If they aren't, the buyer can still submit an offer asking that the seller pay a co-op commission. Alternatively, they can ask the seller to provide a credit at closing which the buyer will then use to pay the buyer's agent. If none of those work, then the buyer will need to bring additional funds to closing to pay their agent. Or, of course, not use an agent at all.

In my opinion, this is bad for buyers, particularly those with a small down payment who are already struggling to have the money to buy.

As with everything real estate, how things will work will probably depend on the area/market.

[clairebear]

PP explained it pretty well. Personally I think it hurts buyers, especially first time buyers who don't have a lot of extra money to pay their agent out of their own pocket. For example, I have a 2/1 listed for sale at $159,00. It's definitely a starter home or a rental for a cash investor. Buyer's agents are now asking if I'm offering a agent commission prior to showing it. If I wasn't, they would most likely not show it because their buyers wouldn't be able to come up with the additional $3975 (2.5%) to pay their agent. This either leaves the buyers with a smaller pool of homes they can afford, or pushes buyer's agent to accept a much lower than average commissions to match what their client can afford to pay them.

As a real estate agent it has reduced transparency for everyone and hasn't really helped anyone. Home prices aren't go by down over this. Sellers are still offering agent commissions because it's been baked into values forever. And if they don't offer it thinking they'll save money they aren't reducing their list price since they are already cheap and looking to maximize profits.

I don't do a lot of sales (mainly I do appraisals) so I'm curious to see how it shakes out. It really doesn't affect me since I haven't been a buyer's agent in years.

[hbomdiggity]

So basically, the effect of this change is exactly what they intended to avoid, that wasn’t even a problem to begin with.

[lilac05]

Does this mean if sellers were originally paying 6% and it was getting split that now they’re going to pay 6% and the selling agent keeps all of it? Or will they only be paying 3%?

There needs to be some really big changes in the way that the real estate market works, but this isn’t it.

[scout8]

Aug 17, 2024 11:37:56 GMT -5 lilac05 said:

Does this mean if sellers were originally paying 6% and it was getting split that now they’re going to pay 6% and the selling agent keeps all of it? Or will they only be paying 3%?

There needs to be some really big changes in the way that the real estate market works, but this isn’t it.

It depends.

If the seller is paying 6%, it will all go to the listing agent and the listing agent will then pay 3% to the buyer's agent. That's how it has always worked. The difference under the new rule is that the 3% co-op commission can no longer be advertised in the MLS. It can be advertised outside of the MLS and/or the buyer's agent can ask the listing agent if there is a co-op. 

Or, the seller may only pay 3% to the listing agent. In that case, if there is a buyer's agent involved, the buyer will then be asking the seller to pay an additional 3% directly to the buyer's agent. 

[sent]

So does this mean as a buyer, I can directly ask the seller’s agent to show me the property and I don’t need a buyer’s agent acting on my behalf?

I’m not discounting what a buyer’s agent might do for their clients. But in this increasingly DIY world, maybe all of us don’t need one. Ours showed us 8 houses in 1 day, submitted our offer and reminded us to do a tank sweep. The biggest value to us was arranging those 8 appointments in 1 day but we couldn’t do this ourselves because the system didn’t allow it.

ETA - I know commercial is different but when I purchased my commercial property last year, we completed the transaction with zero agents on either side. I did try to enlist two agents to help me find a property about 2 years prior. One only pushed me toward properties listed on the MLS and nothing else. The other one was constantly mansplaining me and got mad when I found properties outside of what he could find in his databases and contacted the listing myself. (There are sometimes local properties with a sign in the window that aren’t listed in formal databases because those sellers don’t want to mess with commissions on both sides.)

[scout8]

Aug 18, 2024 4:42:28 GMT -5 sent said:

So does this mean as a buyer, I can directly ask the seller’s agent to show me the property and I don’t need a buyer’s agent acting on my behalf?

I’m not discounting what a buyer’s agent might do for their clients. But in this increasingly DIY world, maybe all of us don’t need one. Ours showed us 8 houses in 1 day, submitted our offer and reminded us to do a tank sweep. The biggest value to us was arranging those 8 appointments in 1 day but we couldn’t do this ourselves because the system didn’t allow it.

Yes, you can purchase a house without using a buyer's agent. That has always been the case. Nothing in this settlement changes that. I'm not sure what you mean that the system didn't allow it. What system? 

[sent]

Aug 18, 2024 6:21:19 GMT -5 scout8 said:

Aug 18, 2024 4:42:28 GMT -5 sent said:

So does this mean as a buyer, I can directly ask the seller’s agent to show me the property and I don’t need a buyer’s agent acting on my behalf?

I’m not discounting what a buyer’s agent might do for their clients. But in this increasingly DIY world, maybe all of us don’t need one. Ours showed us 8 houses in 1 day, submitted our offer and reminded us to do a tank sweep. The biggest value to us was arranging those 8 appointments in 1 day but we couldn’t do this ourselves because the system didn’t allow it.

Yes, you can purchase a house without using a buyer's agent. That has always been the case. Nothing in this settlement changes that. I'm not sure what you mean that the system didn't allow it. What system? 

The “system” where the seller’s agent wouldn’t talk to you directly and would only talk to a buyer’s agent representing you. Maybe it’s not supposed to be this way but if you tried to see a house without a seller’s agent, the buyer’s agent would try to make you their client before agreeing to show it to you. This was my experience buying a home pre-COVID. I’m sure it’s insanity now. My commercial experience was very different as I said.

[TR]

Aug 18, 2024 9:08:49 GMT -5 sent said:

Aug 18, 2024 6:21:19 GMT -5 scout8 said:

Yes, you can purchase a house without using a buyer's agent. That has always been the case. Nothing in this settlement changes that. I'm not sure what you mean that the system didn't allow it. What system? 

The “system” where the seller’s agent wouldn’t talk to you directly and would only talk to a buyer’s agent representing you. Maybe it’s not supposed to be this way but if you tried to see a house without a seller’s agent, the buyer’s agent would try to make you their client before agreeing to show it to you. This was my experience buying a home pre-COVID. I’m sure it’s insanity now. My commercial experience was very different as I said.

Thats weird because having a buyers agent involved cuts the sellers agent’s commission in half, wouldn’t they have preferred buyers without an agent?

The word “agent” has lost all meaning to me now.

[rubytue]

Aug 18, 2024 9:08:49 GMT -5 sent said:

Aug 18, 2024 6:21:19 GMT -5 scout8 said:

Yes, you can purchase a house without using a buyer's agent. That has always been the case. Nothing in this settlement changes that. I'm not sure what you mean that the system didn't allow it. What system? 

The “system” where the seller’s agent wouldn’t talk to you directly and would only talk to a buyer’s agent representing you. Maybe it’s not supposed to be this way but if you tried to see a house without a seller’s agent, the buyer’s agent would try to make you their client before agreeing to show it to you. This was my experience buying a home pre-COVID. I’m sure it’s insanity now. My commercial experience was very different as I said.

My understanding is that now this is absolutely the case. You’ll need to sign before opening the first door.  Whereas before, you could, in theory bounce between agent. We’ve used redfin for the last few transactional, because we really just need a door opener. Real estate has always been a special interest of mine. 

I was seeing something about how now they won’t be able to advertise the coop percentage (ie what the seller will pay the buyer). And how I understood it from NPR is that rather than saying 3% selling agent, 3% buyer. Now it’s 6% selling agent, and it sounded like it was up to the selling agent to share it. But I’m not currently in the market for real estate. So I haven’t really looked at it. 

[themoneytree]

I have been overseas during a lot of our office meetings about this, but my fear is that the new rules will encourage a lot more dual agency transactions with the listing agent representing both sides.

That is how it works a lot of other places in the world and it effectively means that buys will not have representation in the way they have in the past.

It will be interesting to see how it all pans out. I agree that some changes are needed - it’s an expensive system that was tough for both sellers and a lot of agents (commission only) but also agree that this was not the needed change and will likely create many more issues for buyers than it solves. In fact I think the big losers in this whole thing will be buyers.

It will be interesting to see how it all pans out in the long run.

The system that really needs a complete overhaul is the English one. It’s cheaper to sell but it is absolutely shocking for both buyers and sellers. I don’t know how they get away with keeping it like this.

[tiki]

Ugh. Thanks all. The area we live in has been hot / a seller's market for the last decade, with buyers already doing crazy things like waiving inspection, waiving mortgage contingencies, making all-cash offers to win, etc. I'm pretty sure this is just going to mean buyers also have to compensate their agent directly in order to get a bid accepted.

[clairebear]

Aug 18, 2024 4:42:28 GMT -5 sent said:

So does this mean as a buyer, I can directly ask the seller’s agent to show me the property and I don’t need a buyer’s agent acting on my behalf?

I’m not discounting what a buyer’s agent might do for their clients. But in this increasingly DIY world, maybe all of us don’t need one. Ours showed us 8 houses in 1 day, submitted our offer and reminded us to do a tank sweep. The biggest value to us was arranging those 8 appointments in 1 day but we couldn’t do this ourselves because the system didn’t allow it.

ETA - I know commercial is different but when I purchased my commercial property last year, we completed the transaction with zero agents on either side. I did try to enlist two agents to help me find a property about 2 years prior. One only pushed me toward properties listed on the MLS and nothing else. The other one was constantly mansplaining me and got mad when I found properties outside of what he could find in his databases and contacted the listing myself. (There are sometimes local properties with a sign in the window that aren’t listed in formal databases because those sellers don’t want to mess with commissions on both sides.)

Yes, but you have to understand the seller's agent is only going to act in the seller's best interest and not yours. I would be highly uncomfortable with that specific situation unless the buyer has made several home purchases and is knowledgeable about the process. I am a real estate broker and sold a home this spring (represented the seller). I had a unrepresented buyer want to see the and he ultimately bought it. The entire process made me uncomfortable. He made a full price offer and I had to walk him through the inspection process (he used my inspector I recommended). I treated him ethically, but ultimately he declined the termite inspection ( I don't think the house had termites, but wasn't entirely sure) and over paid for the home. The seller was willing to discount up to $10,000 and offer seller concessions. The seller was paying me 6% (half to me and half to the buyer's agent), but since there was no buyer's agent, I was technically going to be paid 6%. I was also uncomfortable with that, so I ended up giving back 1.5% to the seller and was paid 4.5%. Even if the buyer had to pay his own agent (which he didn't for this sale), he would have still saved money.  

[sent]

Aug 18, 2024 9:27:37 GMT -5 TR said:

Aug 18, 2024 9:08:49 GMT -5 sent said:

The “system” where the seller’s agent wouldn’t talk to you directly and would only talk to a buyer’s agent representing you. Maybe it’s not supposed to be this way but if you tried to see a house without a seller’s agent, the buyer’s agent would try to make you their client before agreeing to show it to you. This was my experience buying a home pre-COVID. I’m sure it’s insanity now. My commercial experience was very different as I said.

Thats weird because having a buyers agent involved cuts the sellers agent’s commission in half, wouldn’t they have preferred buyers without an agent?

The word “agent” has lost all meaning to me now.

I’m trying to post from my phone while the kids are being so loud. I see in my previous post I mixed up buyer’s agent and seller’s agent.

But yes, this is what I was trying to say. You would think the seller’s agent would want to show the house to an unrepresentated buyer because they would potentially get a higher commission. Idk what happens these days because everything where I am literally sells itself with bidding wars and all kinds of things waived. I feel like the agents in my town spend all their time just staying on the top of mind so you remember to call them to represent you when it’s your turn.

I wonder if this industry is headed for flat fees.

[scout8]

Aug 18, 2024 9:38:25 GMT -5 rubytue said:

Aug 18, 2024 9:08:49 GMT -5 sent said:

The “system” where the seller’s agent wouldn’t talk to you directly and would only talk to a buyer’s agent representing you. Maybe it’s not supposed to be this way but if you tried to see a house without a seller’s agent, the buyer’s agent would try to make you their client before agreeing to show it to you. This was my experience buying a home pre-COVID. I’m sure it’s insanity now. My commercial experience was very different as I said.

My understanding is that now this is absolutely the case. You’ll need to sign before opening the first door.  Whereas before, you could, in theory bounce between agent. We’ve used redfin for the last few transactional, because we really just need a door opener. Real estate has always been a special interest of mine. 

I was seeing something about how now they won’t be able to advertise the coop percentage (ie what the seller will pay the buyer). And how I understood it from NPR is that rather than saying 3% selling agent, 3% buyer. Now it’s 6% selling agent, and it sounded like it was up to the selling agent to share it. But I’m not currently in the market for real estate. So I haven’t really looked at it. 

This may work differently in other areas, but in my area, you can still have the listing agent show you the house. You would be an unrepresented buyer. Or, you could sign a non exclusive buyer agency agreement with multiple buyer's agents if you didn't want to commit to just one. 

[clairebear]

Aug 19, 2024 15:48:07 GMT -5 sent said:

Aug 18, 2024 9:27:37 GMT -5 TR said:

Thats weird because having a buyers agent involved cuts the sellers agent’s commission in half, wouldn’t they have preferred buyers without an agent?

The word “agent” has lost all meaning to me now.

I’m trying to post from my phone while the kids are being so loud. I see in my previous post I mixed up buyer’s agent and seller’s agent.

But yes, this is what I was trying to say. You would think the seller’s agent would want to show the house to an unrepresentated buyer because they would potentially get a higher commission. Idk what happens these days because everything where I am literally sells itself with bidding wars and all kinds of things waived. I feel like the agents in my town spend all their time just staying on the top of mind so you remember to call them to represent you when it’s your turn.

I wonder if this industry is headed for flat fees.

I offer a limited service flat fee to list a home in MLS. $500 bucks gets you an MLS listing. I take the photos which are above average or you can get professional photos done at your expense. It's popular among investors or smaller builders who don't have a model home. They are experienced with selling and don't want to pay a full commission. I love doing them as they are great money ($500 to maybe 2-3 hours worth of work) and I don't care if the house sells or not. They typically always sell though.  I wonder how a flat fee would work on the buyer's side.  In central Florida the market is cooling and things are sitting on the market for several months. Multiple offers are a thing of the past and it takes more marketing to sell these days.