New rules are set to shake up the real estate industry starting August 17, bringing significant changes for both home buyers and sellers. As the National Association of Realtors (NAR) adapts to recent litigation settlements, two major changes stand out: sellers will no longer be required to compensate buyer agents, and buyers must now sign contracts specifying their agent's compensation.
These changes, while offering potential benefits for consumers, also introduce complexities and potential risks. As Stephen Brobeck, a Consumer Federation of America (CFA) senior fellow, advises, "Knowledgeable home buyers and sellers will be able to take advantage of the opportunities and avoid the risks."
The CFA offers three essential tips for navigating this new real estate landscape:
- Choose Your Agent Wisely: Selecting a competent and trustworthy agent is now more critical than ever, particularly for buyers. Buyer agents must now obtain written approval before showcasing properties, underscoring the importance of their understanding of complex contract forms and their willingness to explain them. When selecting an agent, both buyers and sellers should consider:
- Is the agent a broker or associate broker? Brokers typically have more experience and training.
- Does the agent have a proven track record and positive client reviews? Online resources like Zillow and Realtor.com can provide valuable insights.
- Is the agent transparent and communicative? Will they readily provide contract forms and terms for review and discuss them openly?
- Scrutinize Contracts Carefully: Thoroughly review and understand all buyer or seller contracts (agreements), paying close attention to any filled-in blanks. Many contracts can be complex and confusing; do not hesitate to seek advice from an attorney or independent expert if needed. Avoid contracts containing:
- Commitments to compensate an agent before establishing a client relationship.
- Blanket commitments to dual agency, which can compromise seller representation.
- Requirements for binding arbitration, limiting legal remedies in case of disputes.
- Provisions combining listing agent and buyer agent compensation, or requiring buyer agent compensation in seller contracts.
- Buyer contracts allowing the buyer agent to collect more compensation than negotiated.
- Negotiate Commissions Openly: Discuss and negotiate commissions and other agent compensation in clear dollar amounts. The core issue behind recent litigation against the industry stems from the long-standing practice of setting fixed commission rates. The new rules empower buyers to negotiate their agent's compensation; aim for a goal of 2% (of the home sale price) or less. Sellers, who have always had this option but often haven't exercised it, should also actively negotiate.
Realtors say they expect the rules to decimate the business for smaller agents. “The days of the part-time agent who sells a house or two a year in their spare time are over,” said a Northern Virginia Realtor who sells millions of dollars worth of properties each year. Highly successful agents are expected to wield more power as they squeeze out smaller players.
Be aware that some Realtors may resist this shift by pressuring sellers to commit to specific buyer agent compensation upfront or by assuring buyers that sellers will cover these costs. The CFA advises sellers to avoid upfront commitments and wait for buyer offers, allowing buyers to include agent compensation requests in their offers if needed.
These changes mark a significant turning point in the real estate industry. While navigating the new rules may require increased diligence and awareness, both buyers and sellers now have opportunities to secure more favorable terms and avoid potential pitfalls in their real estate transactions.
Additional Resources:
- The CFA has recently issued detailed criteria for evaluating both seller and buyer contract forms.
Stay informed and be empowered in your real estate journey.
