Even casual followers of the real estate market and industry are undoubtedly aware of the changes slated for mid-August 2024 regarding commissions and how agents are paid. But, in case you haven’t heard, changes are afoot. The news regarding the changes were filled with sensationalism and hyperbole…because, you know, that’s what gets the clicks. There are real changes, chief amongst them is the fact that beginning on August 17th, 2024, Listing Agents will no longer be allowed to advertise the amount they are willing to pay a Buyers Agent in the multi-list system. Of course, there are other provisions of the settlement, but that one is driving the headlines and causing the biggest concerns, especially amongst buyers.
To understand the concern, we need to revisit how commissions have typically been earned and paid up to this point. When a home seller contracts with a listing agent, the commission charge is determined up front. That does not change…it always has been and continues to be a negotiated amount. It is usually a percentage of the sales price. If the listing agent ends up being the one that sells the home to a buyer, that agent retains the full percentage. More often than not, the listing agent relies upon other agents (who represent buyers) to find the new owner. In exchange, the listing agent shares the commission with the buyer’s agent. In the past, the amount that the listing agent was willing to pay was included in the listing in the MLS system, and, by default, included in any resources that pull from MLS (Zillow, Realtor.com, Trulia, ect). Starting August 17th, 2024 that cannot happen anymore. It can’t be in the MLS system, nor can it be in any advertisement where the MLS number is shown.
Does that mean that buyers have to pay their agent’s commission? No, at least not necessarily. While the listing agent can longer make public the amount they are willing to pay a buyer’s agent, there is nothing that says they cannot any longer pay the buyer’s agent. It is an unfortunate case where the desire for transparency and competition have actually obscured transparency. Our discussions with industry partners and agents indicate that the vast majority still intend to share with buyers agents. That means that buyers will continue to get their own representation without having to pay an agent’s commission out of pocket…provided that purchase a home where the listing agent is sharing commission. How will they know? Well, their agent is going to have to make a call.
Are there going to be times when a buyer wants a house where the listing agent won’t share commission with a buyers agent? Almost certainly, yes. In those cases, the buyer will have to decide how best to navigate that situation based on their finances, home buying experience, and a host of other factors. They could opt to pay their agent out of pocket (buyer agent commissions cannot typically be included in a mortgage…though there are almost certainly new lending products being developed that could change that). They could work directly with the listing agent, but by Alabama Real Estate law, that agent enters into a “dual agency” situation where they essentially become a “transaction agent” and not allowed to fully advise either the sellers or the buyers. Or, they could simply remove that home from consideration, much as they would one that is overpriced or otherwise not suitable.
All of this, of course, will be pretty fluid in the early days after the changes go live. Expect to see some listing agents test the waters, expect others to stick with a very status quo mindset. For buyers, the first few steps still remain the same…get pre-approved and find an agent that you connect and who is looking out for your best interests.