How New Rules Could Change Real Estate Agent Commissions
Last updated October 17, 2024
As part of a settlement agreement for a class action antitrust lawsuit, the National Association of Realtors (NAR) has, for the first time in decades, changed the way home buyers and sellers interact with their real estate agents.
Beginning in August, the NAR’s 1.5 million members were governed by new rules that radically change the way their commissions are negotiated and require them to obtain a signed contract from potential buyers.
The new procedures are designed to make fee structures transparent, promote competition, and ensure that customers are better informed about their options.
The Consumer Federation of America (CFA) predicts that, over time, the settlement “will save home sellers and buyers greatly, eventually lowering agent commission fees by tens of billions of dollars annually.”
Under the old system, a buyer rarely paid their broker directly to find them a house and negotiate the deal. Traditionally, a seller agreed to pay their listing agent a commission of five or six percent of the final sale price. The seller’s agent would then split their fee 50/50 with the buyer’s agent.
As a result, the industry essentially fixed prices, “since the buyer-agent compensation wasn’t negotiated,” said Stephen Brobeck, a senior fellow at CFA. “Also, these rates bore little relationship to the quality of the service that consumers received, because all agents, regardless of their competence and experience, charged the same percentage.”
Agents also charged the same percentage regardless of the work they did to make the sale, Brobeck told Checkbook during a discussion of the new rules on our Consumerpedia podcast. “A buyer-agent that showed 20 houses was paid basically the same commission as a buyer-agent who showed only one house,” he said.
Brobeck believes that if a buyer can negotiate down their agent’s commission, the agent can negotiate a better sale price because the seller wouldn’t have to pay as much to the buyer’s agent.
The new rules also prohibit a seller’s agent (the listing agent) from disclosing how they will split their commission with a buyer’s agent on the Multiple Listing Service (MLS) affiliated with the National Association of Realtors, which most agents use to find homes to show their clients.
Critics claimed that when MLS listings included info on buyer-agent compensation (how the total commission would be split), agents could skip qualifying listings that offered below-market compensation, and “steer” clients to properties that were more lucrative for them.
(This part of the settlement does not impact consumers or agents in several major metro areas—most notably Seattle and much of New York City—because agents there use a listing service that’s not affiliated with the NAR.)
The new rules also bar a buyer’s agent from getting a higher commission than agreed to in the contract, even if the seller tries to offer more money.
The NAR says the new rules have “eliminated any theoretical steering” that would benefit agents and penalize customers.
Also new: A buyer’s agent must have a signed contract before they can show their clients any property. In the past, buyers in most states were encouraged, but not required, to sign agreements with their agents. This legally binding agreement will specify how the agent will get paid if a purchase is made, and that the buyer is responsible for that commission if the seller doesn’t pay it.
The contract will also inform buyers that their agent’s commission is negotiable. In theory, this has always been the case, but now it’s disclosed in writing. Consumer advocates hope the compensation disclosure will encourage buyers to comparison shop and negotiate rates.
Note that some buyer’s agents offer short-term “touring agreements.” These agreements could involve one house or a few showings over a short period with no continuing financial obligation.
It’s OK to sign these, Brobeck told Checkbook. The agent doing this is “auditioning for the job of being your fiduciary agent,” he said.
Remember: If you’re shown a house and you end up buying it through another agent, expect the “touring agent” to demand part of the buyer-agent commission.
Will Anything Really Change?
NAR President Kevin Sears told CNN the new rules “help to further empower consumers with clarity and choice when buying and selling a home.” Sears said he was confident NAR members would “embrace this evolution of our industry and help to guide consumers in the new landscape.”
Change is already happening, but it’s a slow process. The industry, consumers, and regulators all face huge challenges.
“I keep hearing...from buyers and sellers who are confused about what they have to sign,” said real estate and personal finance expert Ilyce Glink. “The contracts are opaque and difficult to parse.”
Brobeck said he expects the commissions to decline over time from an average of five to six percent to an average of three to four percent. Glink said she doesn’t expect much change in the near term.
“Maybe in the long run this will all sort out where buyers pay a little bit less and sellers pay a little bit less, but I don’t know,” Glink told Checkbook on our Consumerpedia podcast. “As a person who’s now selling a condo, I can just tell you, in the real world, nothing has changed. Agents are back-channeling each other about commissions.”
Glink said she’s glad people are more aware that commissions are negotiable, but she doesn’t expect the best agents to negotiate their fees. That said, if you don’t ask for a discount, you’re guaranteed not to get one.
“So, you might as well ask and then decide if that’s the person you still want to have representing you at full price, or if there’s somebody else who might be able to do almost as good a job for you for a little less,” Glink advised.
Some Agents Already Circumventing the Rules
Tanya Monestier, a law professor at the University at Buffalo School of Law, reviewed several dozen new contracts used by agents across the country following the court settlement.
In a recent report, she concluded: “By and large, they are all very complicated and will not be understood by the average buyer and seller. Many of these contain terms that would come as a surprise to a buyer or seller, and terms that signal how Realtors plan to circumvent the NAR Settlement.”
Monestier found numerous contracts that said the agreement “can be modified” to give the buyer’s agent “more compensation than originally agreed to—just by signing an addendum or modification agreement.” These modification clauses, “put the agent’s financial interests over those of the client,” she wrote.
Monestier worries that buyers “will be pressured into signing these modifications for fear of compromising their relationship with their agent,” even though they violate the spirit, if not the letter, of the new rules.
The report also highlights clauses found in the new contracts that allow buyers’ agents to collect “bonuses” from sellers.
“I do not believe this is permitted by the NAR settlement,” Monestier wrote. “Buyers’ agents are permitted to only collect the amount listed in their buyer representation agreement, whether characterized as commission, a fee, a bonus, or anything else.”
Buyers could also get “burned,” she noted, by provisions they did not anticipate, such as “default clauses” found in almost every contract analyzed. These clauses require a buyer to pay their agent’s commission if they breach a signed contract to purchase for any reason.
Checkbook asked the National Real Estate Association to comment on the report. The association declined to respond.
How to Find the Best Real Estate Professionals
Real estate transactions involve a lot of money and a lot of emotion. You need to take the time to find a pro who specializes in what you want—whether that’s price, location, or type of housing. Glink recommends auditioning at least three different agents from three different firms.
“All of the companies are going to have a different perspective on how they deal with you, and you’ll get a sense from talking to a few people about the differences in behavior, and the differences in the way that they handle sales or purchases,” she said.
The Consumer Federation of America published a tipsheet to help buyers and sellers find competent, honest agents. CFA suggests buyers and sellers consider asking these questions:
- Is the agent also a broker or associate broker? Brokers are required to undergo more training and frequently have more experience than agents.
- Has the agent sold many properties recently and have they received favorable reviews from clients? Zillow, Realtor.com, and Homes.com can provide this information about most agents.
- Will agents provide contract forms and proposed terms at the outset, give you enough time to read and evaluate them, and be willing to discuss them?
CFA believes some of the provisions it found in newly designed agent contracts are “especially unfair,” and advises consumers not to sign contracts that contain them. Avoid:
- Any blanket requirement for “dual agency,” where one agent or company represents both the buyer and seller. Dual agents cannot provide either party with information or advice that would harm the other. This can be “particularly unfair to sellers who lose fiduciary (loyal) representation from their listing agent,” CFA cautioned.
- A seller’s contract that combines listing and buyer-agent compensation, or a seller’s contract that requires buyer-agent compensation.
- A buyer’s contract that allows the buyer’s agent to collect more compensation than the buyer negotiated. (This is prohibited by the new rules.)
- Requiring approval of mandatory arbitration. If there’s a dispute, this effectively prohibits you from going to court.
The Bottom Line
If you find an agent you like, you will be required to sign a contract. Read it. Make sure you understand it. Ask questions. And if you can’t get straight answers, walk away and find another agent. When in doubt, consult with a real estate attorney or other trusted financial advisor.
The new rules are designed to undo business as usual in the residential real estate market. While this should provide new opportunities for home buyers, it also creates new challenges.
“Knowledgeable homebuyers will be able to take advantage of the opportunities and avoid the risks,” Brobeck said.
Millions of Dollars in Reimbursements Available
The NAR insists it did nothing wrong, but in settling the antitrust lawsuit it agreed to pay $418 million into a reimbursement fund. Payments from other defendants named in the lawsuit bring the current value of the fund to more than $980 million. You may be eligible for compensation if you sold a house as far back as 2014, used a Multiple Listing Service, and paid a commission. Claims can be filed online. The deadline is May 9, 2025.
More from Consumer Federation of America:
- Criteria for Evaluating Home Seller Contract Forms
- Criteria for Evaluating Home Buyer Contract Forms
More from Ilyce Glink:
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.