When Does The New Real Estate Commission Law Take Effect? What You Need To Know

Effective August 17, 2024, a major overhaul to real estate commission rules is shaking up the industry. If you’re planning to buy or sell a home, here’s what you need to know about these changes.

What is the New Real Estate Commission Law?

The new real estate commission law comes after a historic $418 million settlement between the National Association of Realtors (NAR) and homeowners, addressing concerns over high and non-negotiable commission fees. This law, which took effect on August 17, 2024, aims to create a more transparent and flexible commission structure for both buyers and sellers.

Key Changes in the Law

1. Sellers No Longer Pay Buyer Agent Commissions

Previously, sellers were responsible for paying both their own agent’s commission and the buyer’s agent’s commission. Under the new rules, sellers are no longer required to pay the buyer’s agent commission upfront. Instead, buyers and their agents must negotiate their fees directly, allowing for more flexibility and potential savings for the buyer.

2. No More Commission Disclosure in Listings

To prevent “steering,” where agents may guide clients toward properties offering higher commissions, buyer agent commissions will no longer be automatically included in the property listings. This change aims to make the home-buying process more transparent and ensure buyers have a clearer picture of the actual costs involved.

3. New Buyer Agent Representation Agreements

Now, buyers will need to sign a representation agreement with their agent before viewing properties. This agreement will outline the terms of compensation, making the fee structure more clear and preventing misunderstandings later in the process.

Why This Matters for Buyers and Sellers

Impact on Buyers

Buyers now have more control over the commission negotiation process with their agents. While this could mean lower overall costs, it could also lead to situations where agents demand higher fees, especially if they are not being paid by the seller. Buyers will need to be more proactive and diligent in discussing compensation upfront.

Impact on Sellers

Sellers may benefit from the law by being able to better negotiate agent commissions and potentially reduce the overall cost of selling their property. However, the lack of a buyer agent commission included in listings might make it harder for sellers to attract certain buyers, particularly those using an agent who expects a commission.

Will These Changes Affect Home Prices?

Experts are divided on whether these changes will impact home prices. Some argue that by reducing commissions, buyers may face higher prices as sellers adjust the sale price to account for the absence of the buyer’s agent commission. Others believe the market will stabilize and that these changes will result in more competition and better deals for consumers.

What Should Buyers and Sellers Do Now?

Buyers: Make sure to discuss agent fees early and sign a formal representation agreement to avoid surprises.
Sellers: Consider how these changes could affect your sale strategy and commission structure, and be prepared to negotiate more directly with potential buyers.

Conclusion

The new real estate commission law marks a significant shift in how commissions are handled in property transactions. As a buyer or seller, understanding these changes will help you manage the market more effectively. Whether you’re looking to save on commission fees or wondering how this affects property pricing, the key is to stay informed and proactive.

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