How buyers, sellers, and agents are navigating the real estate shake-up

The real estate industry got its biggest jolt in years in August, when new rules kicked in for the 1.5 million members of the National Association of Realtors, giving consumers more flexibility to set agent commission fees under a historic $418 million settlement.

Now these changes are affecting the real estate market on the ground, as Michael Rodriguez recently found out. When the first-time home buyer started his search in Northern Virginia early this year, the settlement hadn’t yet been announced — and he didn’t even know then how agents got paid.

“My agent explained that the industry was in the middle of a lawsuit but that I would be covered by the old rules even if things changed by the time I bought a house,” he explained.

It turns out the settlement, announced in March, upended many of the old ways of doing business, as Rodriguez discovered.

Sellers can no longer advertise an offer to compensate the buyer’s agent on databases known as multiple listing services (MLS), on grounds that buyer’s agents might be more likely to bring their clients to properties where owners offered the most compensation. They can discuss fees with the buyer and the buyer’s agent offline, though.

The settlement also required that buyers using an agent first sign an agreement that spells out how much that agent will be paid — either a percentage of the sales price or a fee for services — with the buyer on the hook for the payment unless they negotiate a contribution from the seller.

Both changes mark a sharp break from traditional agreements in which the seller pays the commission for both agents. While fees have always been negotiable, they usually totaled between 5% and 6% of the sale price.

Even before the formal start of the new rules on Aug. 17, buyers and sellers were adjusting to the settlement — with agent commissions falling, partly as a result of increased bargaining by buyers. The average commission per agent was 2.55% in July, down from 2.62% in January, according to a Redfin report.

Here arehow ordinary people have adjusted to the new normal in real estate.

Rodriguez, who wound up buying a home in Falls Church, Va., in July, signed a buyer’s agent agreement with Temi Akojie, an agent with Fulcrum Residential in Washington, D.C., when he began looking in January. At the time, they didn’t negotiate a commission, he explains.

“Temi explained that I could negotiate her fee, but I didn’t think much about it until we were getting ready to close on the house, because at that time [before the rules’ enactment] sellers paid the buyer’s agent fee,” Rodriguez said.

But when Rodriguez found out the seller had negotiated with Akojie that she would get only $10,000, not the $12,000 that would have been the case before, he wanted to make sure she was fairly compensated. He topped off her commission with an extra $2,000 when the deal closed.

“She did a great job and I didn’t think it was fair for her to be shortchanged,” Rodriguez said. “She worked hard all year to help me buy a house, so she should get paid for her services.”

Still, Rodriguez said he sees value in the new rules and believes the new transparency about agent compensation helps buyers and sellers understand what they need to pay for their agent's work.

But some experts have a more skeptical take, noting that the new rules could disadvantage cash-strapped buyers — such as first-time buyers, those with lower incomes, or people of color without family wealth or experience buying homes — because they will no longer have the strong possibility that the seller will pay the commission for both agents. Instead, they are on the hook for either having enough cash on the side to pay their agent or working with the seller to help cover those costs.

One recent working paper by economists at Stanford, Columbia, and Northwestern Universities, for example, concluded that even if the NAR settlement “results in a significant decrease in agent fees, it is unlikely to substantially improve housing affordability for prospective buyers” who are “financially constrained.”

For some sellers, the practice of paying someone who represents their buyer always has been problematic. Bruce Satrom, of Alexandria, Minn., is one of them.

“As the seller, I hire someone to sell my house,” Satrom said. “As the buyer, you hire an agent to negotiate for you and help you buy, so you should pay your agent for their services. That seems simple and clear to me.”

Satrom found himself navigating the new rules when he recently put his Minnesota vacation home on the market. He insisted he wouldn’t pay a buyer’s agent — even though his agent recommended that he negotiate to pay part of their compensation to get better offers.

The house wound up getting three offers the first weekend it was on the market, but two got bogged down over financing and other contingencies. Eager to sell, Satrom then decided to accept the third offer despite the buyer’s request that he pay that agent’s fee. Relaxing his long-standing preference, Satrom negotiated to pay half of the buyer’s agent’s fee instead of the full amount.

“It’s all supply and demand and how much you want to buy or sell,” he said.

Agents might not be thrilled with the new rules, but they “still have to get comfortable” with them, said Philip Sexton, co-owner of the Sibbach Team with eXp Realty in Scottsdale, Ariz.

These changes include new forms that agents need to understand and explain to their clients — forms that some consumer groups have criticized as too complicated for average people to understand.

Some states require a real estate attorney to be part of a transaction, while others, such as Arizona, do not. But in general, “there’s a new focus on legal documents being friendly and understandable for consumers,” Sexton said.

Sellers were always given a listing presentation and then signed a written agreement. Under the new rules, he explains, it’s now the same for buyers, who also must be given a consultation by an agent and sign paperwork before working with them.

Sexton also sees buyers becoming more educated about home buying. For example, he expects open houses will become more popular among buyers who want to casually look at properties but aren’t ready to sign an agreement that commits them to work with and pay an agent. That’s because the new rules require the agreement to be signed before an agent privately shows homes to potential buyers.

“We’re having lengthier buyer consultation meetings before we work with buyers,” Sexton said.

Agents are adapting in different ways, he said.

“Some are shifting their business to only work with sellers,” Sexton said. “Others are working harder to demonstrate their value to buyers and provide a menu of services the way listing agents do.”

Meanwhile, the required changes to the MLS commission listings mean that agents must be more transparent about their compensation and prove their value to buyers more aggressively. He said his team focuses on finding and sharing private listings with buyers and working on an internal list of potential sellers to generate more homes to put on the market, which remains legal.

Despite all the changes, buyers’ demand for agent services remains steady, he said.

“Most buyers have heard of the changes, but they still want an agent to hold their hand and help them,” Sexton said. “They know we don’t work for free, and we’re educating them on how the process works.”