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Dong Xiao, Broker - Partner (302)528-9501 dong.xiao@givingtreerealty.com
New commission rules
For decades, Americans have paid real estate agent commissions amounting to roughly $100 billion annually. On October 31, 2023, a federal civil jury found that the National Association of Realtors (NAR) had conspired to inflate commissions paid to real estate buyer agents and determined that NAR and its codefendants owed damages of nearly US $1.8 billion. In March 2024, NAR agreed to settle for US $418 million in damages and eliminate its rules on commissions after multiple class-action lawsuits nationwide alleging anticompetitive practices.
Traditionally, when a homebuyer hires a real estate agent, the buyer’s agent is typically paid by the seller. Usually, the listing agent splits the commission and pays the buyer’s agent from the home’s sale price. While it is possible for home sellers to refuse to offer a commission to the buyer’s agent, this is rare because sellers know it would greatly discourage buyer agents from bringing their clients.
At the same time, while home sellers know the total amount they will pay to the listing agents, they may or may not know how the commission is split before closing. Similarly, homebuyers may or may not know how much buyers’ agents will receive until they review the closing disclosure. As a result, homebuyers have no controls over how much their agents are paid. A related issue is that homebuyers may not be aware that their agents could be compensated differently even when two homes have the exact same price. Thus, the agents’ interests could potentially conflict with those of their clients.
In the new real estate commission rules, sellers are no longer required to pay both the listing agent and the buyer’s agent. Instead, buyers will directly negotiate their fees directly with their realtor. Listing agents cannot include the buyer’s agent’s compensation in the multiple listing service (MLS), as well as familiar sites such as Realtor.com and Zillow. Buyers must sign an agreement with their agent before viewing homes.
Compared to the old commission model, the new regulations offer better transparency for consumers. Before signing the buyer agency agreement, buyers can now negotiate the agent’s fee with their agent, which was not possible before the new regulations took effect. Buyers will be fully aware of the exact amount they need to pay their agent before signing the agreements. Additionally, they can negotiate with their agent to minimize any conflicts of interest.
