Realtors Face Major Changes as New Payment Rules Take Effect
The real estate industry in the United States is on the brink of a major transformation as new regulations are set to change how real estate agents are compensated. Beginning August 17, realtors will navigate a revised framework that impacts their earnings for assisting clients in buying and selling homes. These changes result from a significant $418 million settlement reached in March with the National Association of Realtors (NAR), a powerful trade group. The new rules aim to dismantle the traditional payment structure, where home sellers were responsible for paying a 5% to 6% commission, usually split between the seller’s agent and the buyer’s agent.
Since the announcement of this settlement, realtors across the country have been preparing by participating in training sessions and reviewing new contracts. Some industry experts predict that these changes will usher in new business models, potentially leading many full-service realtors to exit the industry, while others are optimistic about adapting to the evolving landscape. Leo Pareja, CEO of eXp Realty, one of the largest real estate brokerages in the U.S., describes this transition as a “grand social experiment” and anticipates a period of confusion for his agents.
Kevin Sears, NAR’s president, expressed confidence that members would adapt to these changes, which have been characterized as the most significant shift in America’s real estate market in a century. Sears believes these adjustments will empower consumers with more clarity and choice when buying or selling a home. As August 17 approaches, he remains optimistic about the industry’s ability to embrace these changes and guide consumers through the new landscape.
What Will Change?
Traditionally, sellers paid a commission fee, often 5% to 6% of a home’s purchase price, intended to be shared with the buyer’s agent. This practice often resulted in sellers paying substantial amounts, such as $60,000 for a $1 million home. Critics argued that this inflated home prices and violated antitrust laws, although NAR maintained that commissions were always negotiable.
The NAR settlement includes two key rule changes effective August 17. First, agents’ compensation will no longer be listed on multiple listing services, centralized databases used by realtors. Compensation details can still be communicated through other channels. Second, buyer’s agents must now discuss their compensation upfront and enter into a written agreement with buyers before property tours, ensuring buyers understand their responsibility for their agent’s fees if the seller doesn’t cover them.
New Business Models and Opportunities
Real estate commissions could decrease by 25% to 50%, according to a March analysis by TD Cowen Insights. This shift opens doors for alternative business models, such as flat-fee and discount brokerages. Shelly Cofini, chief strategy officer at Redy, sees the NAR settlement as beneficial for her company. Redy operates a marketplace where agents can bid on home listings, offering incentives and flexible commission structures.
Companies like Flyhomes are also adapting by leveraging technology. Flyhomes, a traditional brokerage, recently launched an AI chatbot to assist homebuyers, anticipating increased demand for information as the new rules take effect.
Impact on Realtors
Under the old system, buyers often received free representation since their agent’s commission came from the seller. Many realtors believe the new rules will favor experienced agents, as homebuyers may hesitate to sign agreements with less experienced professionals. Madison Mathias, a young realtor in South Carolina, emphasizes the importance of confidence and knowledge. She acknowledges that some agents may leave the industry due to resistance to change but remains unfazed by concerns about her age.
The upcoming changes represent a pivotal moment for the real estate industry, challenging realtors to adapt and innovate in a rapidly evolving market.
