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Buyer Fees for Real Estate Commissions: New Opportunities for Realtors®

Mon Feb 26, 2024 by on News

Buyer Fees for Real Estate Commissions: New Opportunities for Realtors®

In the aftermath of the recent Federal Court ruling that held the National Association of Realtors and large residential brokerages liable for approximately $1.8 billion in damages after finding that they conspired to keep residential commissions artificially high, questions as to how, moving forward, commissions for buyer and seller Realtors will be structured remain.

Currently, sellers pay their Realtor’s commission, which is generally 5% to 6% of the home’s selling price, which in turn is shared with the buyer’s Realtor. The buyer does not pay for this fee directly; instead, the commission is fully paid by the seller as part of the closing costs. The issue at trial was whether this custom suppressed competition by making it difficult for both buyers and sellers to negotiate lower commission rates.

Since the purchase price of residential real estate takes into account the Realtors’ commission, a decline in commissions due to this ruling may affect lowering home prices. The rationale behind this is that sellers raised their prices in order to ensure that the real estate Realtors were paid, but now buyers may be able to negotiate their own commission rates.

While NAR had previously settled a Justice Department investigation agreeing to make some changes to its practices, the current administration attempted to nix that settlement and reopen the probe.  The judge in that case did not allow the government to nix that settlement, and the administration is now appealing.

What does this mean for buyers and sellers of residential real estate and their Realtors?

Picture courtesy WSJ

Eventually, the ruling may lead to changes in how Realtor commissions are set and paid. Instead of the seller paying the buyer’s Realtor’s commission, there may be a referral fee from the listing Realtor to the buyer for introducing the buyer to the residential property. Or the sharing of commission fees may end altogether—a “decoupling” of the commission fees.

As a result, buyers may ultimately pay for their Relator commissions and sellers for theirs. A buyer’s Realtor  may resort to flat fees or hourly rates for their commissions. Alternatively, the buyer’s Realtor  may determine the commission by how many homes the Realtor has shown to the buyer or use a variable as to the number of house showings and then a fixed rate for specific services related to the transaction such as finding home inspectors, appraisers, or other service professionals.

There also will likely be an increase in buyers using real estate attorneys while finding their homes online.

What does this all mean?

 While there may still be more copycat lawsuits emerging and appeals, the fact remains that the traditional rules regarding Realtor commissions have changed. Buyers and sellers will have more options and with more competition, the government’s desire to reduce the cost of owning a home may come into fruition. As for Realtors, there are tremendous opportunities to reinvent themselves and embrace change. While commissions will and should be paid to Realtors for their services, Realtors now have to creatively determine how to generate those commissions so that all of the parties have clarity and transparency in the transaction.

From the trenches,

Roy Oppenheim