If you’re looking to buy or sell a home this year, there are new rules around how buyers’ agents are paid that you need to know. Before these changes took effect last summer, the home seller would decide how much to pay both their agent and the buyer’s agent. The buyer’s agent commission would be published in the MLS, the database agents use to market listings to each other, so your agent would know what they could expect to be paid if you bought that house. While the agent commission was always negotiable, in most transactions, the buyer’s agent would accept the fee being offered by the seller. This meant that unless a homebuyer went out of their way to negotiate alternative payment arrangements, homebuyers didn’t need to think about the cost of their agent, just the cost of the home. 

But things have changed due to a legal settlement involving the National Association of Realtors. Now, homebuyers are directly responsible for determining how their agent is paid. Homebuyers and buyer’s agents must agree on payment terms before an agent can take the buyer on home tours. 

So far, the commissions that buyers’ agents are getting paid are about the same as before the change. Because the number of homes for sale is increasing, sellers have generally been accommodating of buyer requests. And in many cases, sellers are still agreeing to cover the buyer’s agent fee. However, buyers still need to educate themselves about how their agent is paid and understand how that fee may be part of the negotiation for a home.  This may be intimidating for homebuyers, but with some preparation, buying a home should be more transparent than it was before. Home sellers shouldn’t fret either, but they need to understand how to market their homes under these new rules to get the best offers and net the highest amount. 

Tips for homebuyers

1. Be Ready to Negotiate Agent Fees

With the new rules, buyers should expect to have a conversation with their agent about fees right away. 

While some sellers are still offering to pay the buyer’s agent up front, others are negotiating agent fees. When you submit an offer, you need to explicitly ask the seller to pay your agent’s commission. And like other terms, they can counter, and ask you to pay your own agent directly rather than having it bundled into the home price. This gives buyers more control but also adds a new cost to budget for. Buyers should:

• Shop around for agents who offer competitive rates or alternative fee structures (e.g., flat fees or hourly rates).
• Negotiate fees upfront to ensure they align with the level of service provided.

2. Understand the Tradeoffs of Using a Buyer’s Agent

Since commissions are no longer necessarily automatically built into the home price, some buyers may consider forgoing an agent to save money. However, this means taking on more responsibility for:

• Market research and pricing analysis
• Writing and negotiating offers
• Navigating escrow, including inspections and other contingencies

For highly experienced buyers, this may be feasible, but for first-time buyers or complicated transactions, the value of an agent who will look out for your interests will be well worth the cost. Agents can be especially valuable in competitive markets where homes receive multiple offers, but even in less competitive markets, agents can help buyers understand how to price their offer to avoid over-paying.

3. Look for Sellers Offering Concessions

Sellers who want to attract buyers may offer incentives, such as covering part or all of the buyer’s agent commission. Buyers should be proactive in asking for such concessions, especially in slower markets where sellers have less leverage. However in hot markets, buyers will need to make sure their offer is the best deal for the seller out of all the offers the seller receives. Buyers can make their bids more competitive by either increasing the offer price, or paying their own buyer’s agent.

5. Use the Transparency to Your Advantage

With commissions more openly negotiated, buyers can now make more informed decisions about what they’re paying for. Whether you want more or less from your agent, this is an opportunity to demand better service from agents or seek out alternative payment arrangements, like paying per-hour or a flat fee.

Tips for home sellers

1. Consider offering to pay the typical buyer’s agent commission

Even though buyers are now responsible for negotiating their agent’s fee, many buyers still want sellers to cover this cost as part of the deal. And data from Redfin shows that the typical buyer’s agent commission hasn’t changed much. Therefore offering a commission could:

• Attract more buyers (especially those who can’t afford or don’t want to pay their own agents).
• Help your home sell faster, particularly in competitive markets.
• Avoid deals falling through. Buyers who are strapped for cash may not have the ability to finance their agent’s pay.

2. Price Strategically in Light of Commission Changes

If you expect the buyer to pay his/her own agent, the buyer may push for a lower home price to compensate. As a seller your primary focus is netting the highest price for your home after you account for commissions and other concessions. 

Imagine you have two offers for your home that you’re listing for $500,000. In the first, the buyer offers $525,000, 5% over your list price. They also request that you pay their agent a 3% commission, or $15,750. The total offer is worth $509,250 in this scenario.The second buyer offers your list price, but is willing to cover their own agent commission. So you’ll get $500,000. All other terms being equal, the first offer is better for you. Even though you’re paying the buyer’s agent. Sellers should:

• Watch market trends closely to see if commissions start shifting.
• Be prepared to adjust pricing to stay competitive.
• Work with an agent who understands how to position your home under the new rules.

3. Be Open to Negotiating Buyer Incentives

If your home isn’t attracting any offers, instead of a price cut, sellers can help buyers with their other costs by:

• Covering part (or all) of the buyer’s agent commission.
• Offering closing cost assistance.

Original Article