This blog post aims to provide homeowners and potential buyers with a clear and informative overview of the new realtor commission law. Understanding these changes will help you make informed decisions and better navigate the real estate market in 2024 and beyond. The real estate industry has undergone significant changes in recent years, and the new realtor commission law is one of the most impactful developments for both buyers and sellers. This legislation is designed to promote transparency and fairness in how real estate agents are compensated. Whether you’re buying or selling a home, it’s crucial to understand how this law affects the process and what it means for your financial interests.

Key Changes Under the New Law

One of the most notable changes introduced by the new law is the requirement for clearer disclosure of commission rates. Previously, commission rates were often negotiated behind closed doors, with many buyers and sellers unaware of the exact amounts being paid to their agents. The new law mandates that real estate agents must disclose their commission rates upfront, ensuring that all parties involved in a transaction understand who is being paid what and why. This transparency is expected to foster greater trust and reduce potential conflicts of interest.

For example, if you see a home for sale online, such as Zillow, or Realtor.com, you see the listing price and basic information about the house. Those sites are fed by a central database called the MLS, multiple listing service. If a realtor lists a house fore sale, they put the property pictures and house information into the MLS database and it pushes that information to all these sites for everyone to see.

What you don’t see on these sites is realtor commission. That information is only available on the MLS site, which you have to be a licensed realtor to access. On this site, a buyers agent can see what commission is being offered to them if they bring a buyer to the deal. For example, a listing agreeement from the seller could be for 6% commission to be paid. On the MLS, it shows that the listing realtor is offering 3% of the sale to a buyer’s realtor for bring a buyer. There can be other commission arrangements. For example, the listing agreement could be for 5% of the sale price and the listing realtor is only offering a buyers realtor 2.5%. That could cause a buyers agent to steer their clients to buy a house that would pay them more commission.

Impact on Home Sellers

For home sellers, the new commission law could have a significant impact on their bottom line. Traditionally, sellers have been responsible for paying the commission for both their own agent and the buyer’s agent. However, with the new law in place, sellers now have more flexibility in how these costs are allocated. This could mean negotiating lower commissions or even shifting some of the financial responsibility to the buyer. Sellers will need to carefully consider these options when pricing their homes and during negotiations.

Another option is for a home seller to sell their house without a realtor. There are a few options for this. They can adverstise their FSBO, For Sale Buy Owner. They can also consider working with a cash home buyer. A cash home buyer is someone who will come in and buy your house for cash, usually in as-is condition. Cash home buyers can close fast and are usually more flexible with a moving date. For more information about selling your home without a realtor, see our blog Can I Sell My Home Without a Realtor?

Implications for Home Buyers

Homebuyers are also directly affected by the new commission law. In the past, buyers often assumed that they were not paying their agent’s commission because it was typically included in the home’s sale price. However, the new law clarifies that buyers may now be asked to contribute directly to their agent’s commission. This shift could influence a buyer’s purchasing power and the overall affordability of a home. It’s more important than ever for buyers to factor in potential commission costs when budgeting for a new home.

A lot of home buyers, especially first time home buyers, scrape together every dime they can save for a down payment on a house, not to mention closing costs. Now that a buyer can be repsonsible for their realtor’s commission, it could make the amount of cash, and thus home affordability, greatly increase for a lot of home buyers.

How the Industry is Adapting

Real estate professionals are already adjusting their practices in response to the new law. Many agencies are offering more flexible commission structures, giving clients a wider range of options to choose from. Some agents are even exploring flat-fee models or performance-based commissions as alternatives to the traditional percentage-based system. These changes are designed to provide clients with more control over how much they pay in commissions, ensuring that the services they receive are in line with their financial expectations.

What to Consider Moving Forward

As this new law takes effect, both buyers and sellers should take the time to educate themselves about the changes and consider their options carefully. For sellers, it may be worthwhile to shop around for an agent who offers a commission structure that aligns with their goals. Buyers should be prepared to discuss commission payments upfront and understand how these costs could impact their purchasing decisions. Consulting with a real estate attorney or financial advisor might also be beneficial to navigate these new waters effectively.