ArcaMax

Let’s stipulate right here that real estate commissions have always been negotiable. It’s just that some agents refuse to work for less. So, they say, “No. The commission is 6%.”

At any point, a seller has the right to find another agent. But if they want to use that agent, the seller can counter and say something like, “Well, I’m willing to pay 5%,” or throw out another number. Then, the agent can decide if they want the business or not.

If you’re worried about commission, consider this: most transactions contain additional fees paid by the seller. Many real estate brokerage companies now add a fee on top of that commission. That fee can be as little as $100, but some brokerage houses charge upward of $500 per transaction, on top of the commission. This fee goes by various names (think “doc prep” fee), but it’s just more cash the seller is shelling out (and it’s usually the seller who pays it).

The listing agreement also discusses how much of the commission the seller broker is willing to share with the buyer’s agent. Often, the commission is split equally between the buyer’s agent and seller’s agent, but not always. In some cases, the seller’s agent keeps more than half. The seller’s agent will get 3.5% and the buyer’s agent might get 2.5%. Or, the reverse.

In essence, the settlement of the NAR litigation attempts to separate the fee that the seller pays the listing broker and the amount paid to the buyer’s broker. Going forward, the listing broker’s listing agreement would provide the amount that the seller agrees to pay the listing broker but may not provide any amount that the seller is willing to pay the buyer’s broker.

Now it’s time to examine what, if any, seismic changes will come to the industry. If sellers are not required to pay the buyer’s commission, some experts apparently think three things might happen: First, buyers may decide not to use real estate agents to buy homes; second, the commission received by the buyer’s agent would be less; lastly, sellers will reduce the price of their home because they’re responsible only for the commission paid to the seller’s agent.

We disagree. We think once buyers are in the market to buy a home, they look for an agent. That agent is now required to provide a written buyer’s agency agreement that will state that the buyer will pay the broker a fee for helping the buyer purchase the home. That amount is also negotiable. Some people think it might be a flat fee. Or a percentage of the sales price. Or, nothing at all. (Yes, we’ve seen pundits who posit this sort of thinking.) Once the document is signed, buyers will be legally responsible for paying that commission.

Let’s say a listing agent has an agreement in force today to list a home and receive a 5% commission. The agent agrees to split the fee equally with the buyer’s broker. The buyer’s broker would receive 2.5% of the sales price. But under the new arrangement, the buyer might agree to pay the buyer’s broker 3% of the sales price for any home the buyer purchases.

The buyer could wind up paying more in this situation. There is no requirement or guarantee that the seller will lower the price to make the deal happen, especially when the U.S. is experiencing an extremely hot sellers’ market. The buyer could try to require the seller to pay the buyer broker’s commission, and if the seller refuses, the buyer could walk away. But is that hurting the seller, when we’re 4-plus million homes short in this country?

Who wants to walk away when you’ve gone to all the trouble to find a house in a hot market? And, right now, it’s the strength of the seller’s market that is driving up prices, even as interest rates once again near 7%.

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