Commission changes sowing confusion, brokers say
In theory, new rules governing how real-estate commissions are divided among buyers’ and sellers’ agents could lower the cost of buying a home. In reality, many agents say, they add paperwork and make the process more confusing.
A settlement in a $418 million class-action lawsuit against the National Association of Realtors ended the practice of agents using the Multiple Listing Service (MLS) to indicate how a sales commission will be split between agents.
The lawsuit, brought by a group of Missouri homeowners in 2019, claimed that automatically giving buyers’ agents a commission violated antitrust laws and artificially inflated costs.
The changes, which took effect Aug. 17, clarify that sellers are not obligated to pay a commission to the buyer’s agent. In a typical transaction, the seller might pay a 5 percent commission, which their agent would offer to split with the buyer’s agent. On a home that sold for $500,000, that would be $25,000, or $12,500 each.
Under the new rules, a buyer’s agent can’t show a home — in-person or remotely — unless their client signs a document acknowledging that all fees are negotiable, are not set by law and that they understand how the agent will be paid, said Crystal Hawkins-Syska, a board member of the Hudson Gateway Association of Realtors, which represents 13,000 agents in the lower Hudson Valley. (The agreement is not required if a potential buyer is just speaking to an agent at an open house or asking about services available.)
Under the new rules, the payment to the buyer’s agent could be a commission from the buyer or seller, a flat fee, an hourly charge or some other arrangement, she said. According to the National Association of Realtors, it cannot be vague, such as “whatever the amount the seller is offering to the buyer.”
Some real estate agents say the rules only add paperwork to the process. “They’re saddling us with yet more forms for people to fill out,” said Daniel Aubry, who operates a real estate agency in Beacon. “It’s just adding another layer of confusion and anxiety,” said Charlotte Brooks, of House Finch Realty in Cold Spring.
So far, the disclosures haven’t had much practical impact, Aubry said. In two cases in which he showed a home, the sellers agreed to compensate the buyer’s agent.
That’s smart, said Bill Hussung of Robert A. McCaffrey Realty in Cold Spring. “It’s a good sales tactic to tell potential buyers, ‘Look, I’m covering your costs.’ ”
Whether the rules will drive down commissions is not clear. Hussung says that commissions have always been negotiable and have dropped over the last decade from 6 to 5 percent. Aubry agreed that commissions have come down.
Home Rules
If you are buying a home:
An agent can’t show you a home — in-person or remotely — unless you sign a document acknowledging that all fees are negotiable, are not set by law and that you understand how your agent will be paid (e.g., a traditional commission split with the seller’s agent or a commission, flat fee or hourly rate).An agreement is not necessary if you are visiting an open house or just asking agents about their services. However, some agents are asking open-house visitors to acknowledge that they understand the agent represents the seller and, if they want to make an offer on the spot, they may need to sign another disclosure about representation and compensation
If you are selling a home:
You are not obligated to pay a commission to the buyer’s agent. However, it might be a good marketing strategy to tell potential buyers that you will do so. Any commission being offered to the buyer’s agent (e.g., 2.5 percent) can no longer be included in the Multiple Listing Service, although you can offer to pay other costs, such as closing fees.
One effect of the rules might be that buyers may be tempted to hire the seller’s agent, a practice known as “dual agency.” But that’s not ideal, said Jonathan Miller of JonCar Realty in Beacon, because of the potential conflict of interest, especially if there is a bidding war. “A dual agent cannot protect somebody as well as a buyer’s agent,” he said.
The rules also could make the profession more difficult for inexperienced or part-time agents who don’t have a track record of sales, said Hussung. “It’s going to be a lot harder for the rookies” to justify being paid a substantial fee by the buyer if it isn’t paid by the seller.
It’s important to note that these commission changes are rules for members of the National Association of Realtors, not laws. Although some states do have laws governing commissions, none have a law that dictates what a buyer’s broker or seller’s broker should earn. It can be negotiated.
I’ve been a broker for 26 years, and the old and new way of earning and charging commissions was never based on an efficient market. It was always based on vapor or whether the market would bear it, or pure salesmanship, positioning, marketing or greed.
New York is one of the few states that allow dual agency, where an agent represents both the seller and buyer, a practice I think should be banned. For the last 10 years, there has been little trust in the industry, not only with the public but among Realtors. I could go on and on about the problems and changes this industry needs, including with attorneys and closing and title agents.
I applaud the changes because, finally, agents will earn their commissions by having individual buyer’s or seller’s agreements. This isn’t confusing or earth-shattering. You want to buy a home, you want to sell a home, you want to engage an agent, here’s what they are obligated to do, here are your protections, backed by law, here’s what it’s going to cost you. Done.