Historic Changes in Home Buying and Selling!

Homebuyers and sellers, rejoice? A settlement reached out of Missouri last week is poised to upend a longstanding, expensive norm in residential real estate: the dreaded 6 percent sales commission. 

In the majority of real estate transactions across the United States, both the seller and buyer enlist representation from agents. For many years, a customary practice has governed the payment arrangement for these agents: a commission ranging from 5 to 6 percent of the home's sale price, typically borne by the seller and then divided between the two agents involved.

No longer! After a protracted legal battle initiated by a coalition of home sellers in Missouri, adjustments are coming to the compensation structure for realtors representing sellers and buyers, overseen by the influential National Association of Realtors, which has historically regulated the sale of U.S. homes. Additionally, it will alter the party responsible for footing the bill. 

The settlement could dramatically drive down homebuyers’ costs. Should the settlement receive approval from a federal court, the traditional 6% commission standard will be eliminated. Sellers would be relieved of the obligation to present a compensation offer to potential buyers and their agents, a practice critics argue has incentivized brokers to steer clients towards pricier properties.

Another proposed regulation entails prospective homebuyers entering into a formal agreement with a broker prior to engaging their services—a requirement that could result in some homebuyers opting out of utilizing brokers altogether.

The effects are going to be potentially earth-shattering for the entire real estate sector. Housingwire, an outlet keyed in our industry news, had these predictions as to the cascading effects: 

• Loan officers and mortgage executives expect home sellers and homebuyers to negotiate more aggressively on commission paid to buyer agents, potentially bringing costs down. At this early stage, it’s unclear how such commissions would be paid since buyers could pay their agents out of their pockets or negotiate commissions as a seller concession in the closing costs.

• Meanwhile, trade groups representing lenders believe that more details on the settlement are needed to understand its coming impact on the housing market. However, they already worry about some groups of considered vulnerable borrowers who could not pay for the buyers’ agent commission due to affordability challenges.

While potentially a source of exciting savings for buyers and sellers, the settlement will completely upend the role of the real estate agent. 

For questions about this and other real estate issues or any legal needs, Lavelle Law offers free consultations. Please contact Attorney Kelly Anderson at (847) 241-1786 or kanderson@lavellelaw.com and we can set up your appointment!