The real estate industry saw a recent change in 2024 which was implemented on August 17th. With the National Association of Realtors (NAR) agreeing to the new rules, real estate investors have to acknowledge a new commission structure when purchasing or selling real estate properties. Adapting to these changes is the key to continuing to see success as an investor as we prepare to head into the new year.
How the Previous Commission Structure Worked
Before the change, home sellers would hire a real estate agent to sell their listing, and they would agree to a commission at an average of 2.5%. The standard practice was that commission costs are usually split between the seller's and the buyer's agent.
Typically, the seller would shoulder the fees for both agents, which leads to the closing price of the real estate property already including the fee they have to pay the listing agent and the buyer's agent. In other words, the buyer ultimately pays for it.
Recent Changes in the Real Estate Commission Rules
With the new rules agreed on by the National Association of Realtors as a result of a federal lawsuit settlement, major changes will now affect all parties involved in the sale of a property, which are:
- Listing agents can no longer make offers to buyers' agents on any NAR-affiliated Multiple Listing Service (MLS).
- A buyer's agent has to provide a written contract with the buyer stating the specific amount of their fee before touring a house, which means real estate shoppers already have a set maximum amount to pay their agents when they purchase a property.
What It Means for Buyers
Payment Negotiations
Buyers can now be more involved in setting their agent's commission costs. They will be presented with a legally binding contract, which clearly states how much the buyer's agent commission is, as well as the work they will be doing for the home buyer.
Potentially Lower Property Taxes
With the option to take out the amount for real estate commissions, the closing costs would be reduced and will reflect on the property taxes. A lower home price can lead to lower property taxes since tax assessors still consider them.
You'll Have to Research Which Agent to Hire
Many real estate agents can help you navigate the housing market but with the new real estate rules, you'll have to do your research with potential buyer agents and sign a buyer representation agreement before even looking at a particular listing.
What It Means for Sellers
Sellers Can Still Negotiate Commissions
The new rules state that the sellers' agents can no longer post the buyer's commissions through NAR-affiliated multiple listing services, but sellers and the seller's agents can still discuss the amount for commissions paid, as long as the conversation falls outside of the MLS.
They Can't Officially Ask to Split Commissions
The usual practice is that sellers are paying agent commissions for both their agent and the buyers, but some do ask buyers to split the costs. Due to the new practices, the buyer has to ask, and the buyer's agent will relay the terms of the deal.
Sellers No Longer Determine the Buyer's Commission
Since sellers were previously the ones who paid commissions, they also set the amount. Due to the new system, home buyers will now have to negotiate directly with their professional representation regarding real estate commissions.
What It Means for Real Estate Agents
Potential Buyers Might Forgo Professional Assistance
There's a possibility that with increased transparency, more buyers would be fully aware of the amount they have to pay and decide that they would save more money by not having to pay commissions. This can be a real possibility considering the home prices in the market today, even just the down payment alone.
Commission Cost Will Drop in Real Estate Sales
Now that buyer's agents have to disclose a flat fee instead of being able to include an hourly rate, they will have to set lower commission rates to win against the competition in the market, or even quit entirely. The Wall Street Journal even stated that brokerages will have to "adapt to survive" amidst the rule changes.
What It Means for First-Time Buyers
Shouldering Commission Costs
First-time homebuyers might need the help of a real estate broker due to the complicated nature of the transaction, especially with the new landscape. With a home seller having the option to place the commission cost on the buyer instead of their proceeds, first-time buyers will have to worry about the additional costs.
Researching Unfamiliar Topics
Since buyers will have to sign a contract with an agent before touring a house or entering a transaction, they will have to look into what potential agents can do for them, which means they will be encountering real estate jargon that can complicate the home buying process.
Potentially Cheaper Commissions Paid
With the new competitive industry, real estate agents can potentially lower their commission rates to gain an advantage over other agents, which means that new buyers might have lower commission costs in transactions.
Purchasing Real Estate Property for a Rental Business
As complicated as purchasing real estate can be, it's only the first step if you intend to turn it into a rental business. You'll have to put in a lot of work to make your business profitable, especially if you take out a mortgage to finance the purchase.
Between marketing to eviction proceedings, it can quickly become a handful for first-time landlords, and making the wrong choices can cause the rental business to suffer. In this case, hiring a property manager might be the best way to handle it.
Austin Property Management Can Do That For You
Our company can handle every aspect of your rental business such as marketing, tenant screening, maintenance, rent collection, accounting, and evictions. Professional property management can be the key to maximizing your property's value.
You can get crucial insights into the current market conditions, earn passive income as you focus on other profitable ventures, and most importantly, have peace of mind. The first step is scheduling a consultation with us, and you'll get a more comprehensive look into the services we offer.
