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You may recall that back in August how realtors are compensated for their services changed dramatically. For decades agents representing buyers and sellers were paid a commission based on the sale price of the property that was split equally between each agent and paid entirely by the seller. Sellers were required to agree in the listing agreement to pay their buyers agent as a requirement to have their home entered into a multiple listing service (MLS). The MLS is owned by realtors and is a central repository of information about the subject property being offered for sale.
Under the new guidelines, sellers cannot be required to pay their buyers commission as a condition of listing their home on an MLS. Seller agency agreements can only address the fee (commission) the selling agent will receive for marketing and representing the seller in the transaction. Sellers are no longer required to agree to pay buyer agents commissions as a condition of listing a home for sale and entering information about the property in an MLS.
Buyers are now responsible for negotiating services they want to receive from a realtor and how much they will pay for those services. When enacted, it was feared that this would have a devastating impact on first time buyers who are traditionally limited in the funds for down payment and closing costs.
These changes are the result of a lawsuit against the National Association of Realtors and several large real estate brokerage firms who spent much of this year preparing their membership and all licensed realtors for this change. Most real estate agents have adjusted to this change and are managing negotiations rather well. A lot depends on how well agents have prepared their sellers for the possibility of being “asked” to pay the buyers agent in any contract offer they may receive. Especially involving a first-time buyer.
Under the new rules sellers are only obligated to pay their agent a fee or commission in return for having information about their home included in the Multiple Listing Service. They are not obligated to pay any of the buyer’s agents commission or fee. But the seller can, if asked as a condition of an offer to purchase, agree to pay some of or all of the buyer’s expense. If they do agree to pay buyer’s agent commission or fee, then the cost to the seller is the same as it had been previously. The difference is that who pays the buyers agent is now negotiable.
About five years ago, first-time home buyers accounted for a third (33%) of homes sold. Recent data for sales to first time home buyers from June of 2023 to June 2024 show sales dropping to 24%, a record low. It is predicted that this percentage could be even lower in 2025. In addition, the median age of first-time home buyers has risen from 33 years old to 38 in five years. Higher interest rates obviously are a significant reason for this drop in the percentage of first-time home buyers and increase in median age. If interest rates continue to remain at current levels or inch up the percentage of first-time buyers could be even lower in 2025. For buyers who lack the funds for down payment and/or closing costs asking a seller to pay a 2% or 2.5% can be a difficult ask if they also need the seller to contribute $10,000 toward buyers closing costs, in addition to 2.5% buyer’s agent commission.
The VA and USDA loan programs are two loan programs that do not require a down payment, it is 100% financing. Plus, these programs allow the seller in the transaction to pay some of or all the borrowers closing costs. Essentially allowing an eligible and qualified buyer to purchase a home with very little if any of their money invested.
In today’s world to achieve this same feat a buyer using either of these two programs to purchase a $300,000 would need for the seller to pay closing costs, about $10,000 to $12,000 PLUS their realtor commission of $7,500 (if 2.5%). A total of $17,500 reduction in proceeds to the seller.
Higher interest rates in the 7% range have and will continue to limit the inventory of homes available for sale. Potential sellers with significant equity in their home are staying put and remaining in their current homes with their 4% or lower mortgage payments. Doing the math, potential sellers quickly realize that selling their current home and giving up their 3.5% mortgage for a 7% mortgage could put them in a position of having a higher mortgage payment than they are paying now.
Realtors have successfully found a work around by making the commission a negotiable item for the buyer and in their listing presentations made the seller aware of the possibility that any offer to purchase their home may include the condition that seller agree to pay the buyers agent commission.
If you are considering selling you home, be ready for the possibility of having to pay your buyers commission in order to sell your home.
If you are considering buying a home, be ready to discuss the specific services your buyer agent will provide for you for the fee they are receiving. And, for the possibility, or probability that you will be asking the seller for a concession and pay your agent from their sale proceeds.
