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Biggest shakeup to buying and selling a home in a century starts today
Dramatic new rules overhauling the way realtors are paid for helping to sell or buy a home come into force today.
The changes, the most dramatic to hit the industry for a century, overturns the system of notorious commission payments levied by real estate agents.
Before August 17 an agent working on behalf of a seller would charge their clients a fee of around 5-6 percent, far more than almost anywhere else in the world.
For example, selling a home worth $1 million would rake in $60,000 in commission for the selling agent involved. That fee was then usually shared with the buyer's own real estate agent.
These fees became baked into house prices, helping to inflate values and realtors pushed buyers towards homes with larger commissions.
After a series of successful lawsuits that argued the practice violated antitrust laws by allowing brokers to collude in order to raise commission prices, the National Association of Realtors (NAR) settled for $418 million and agreed to amend the rules.
A major shift is about to hit the way houses are bought and sold in the US
'Buyers will decide, through negotiation, how much to pay their agents,' home and mortgage expert Holden Lewis explained
The first change will stop agents from putting compensation information on the so-called multiple listing services (MLSs).
Only fee-paying members of the NAR are allowed to call themselves 'Realtors' - and only they can access the MLS database of properties available for sale.
Previously those databases required the seller's agent to list the amount of commission their client is paying.
That, in theory, enabled the buyer's agent to 'steer' buyers to houses on which the commission is higher and through which they can profit more in the event of a sale.
Now however, the compensation details can still be shared, but must be done in person or over the phone.
The second amendment to the rules requires buyers' agents to be upfront about their compensation.
After August 17 the agent and a prospective homebuyer must enter into a written agreement together before even touring a property for sale.
The agreement will outline that buyers could be responsible for paying their own realtor's fees if a seller chooses not to cover that cost.
Some analysts argue the changes will give prospective buyers more power to negotiate with real estate agents during the process.
'Buyers will decide, through negotiation, how much to pay their agents,' home and mortgage expert Holden Lewis explained.
'But that doesn't mean that buyers have to pay their agents out of pocket. They can ask sellers to chip in some or all of the commission for the buyer's agent.
'Some sellers might refuse, especially where inventory is low and bidding wars are breaking out, but most sellers will be willing to negotiate agent compensation,' Lewis said.
The move has been met with mixed emotions by real estate agents since they were announced in March.
Agent commissions could fall between 25- 50 percent, according to analysis conducted by TD Cowen Insights.
However, this could offer up opportunities for realtors with different business models, such as flat-fees rather than percentage based commissions, to excel.
'These changes help to further empower consumers with clarity and choice when buying and selling a home,' NAR's president Kevin Sears said ahead of the changes.
'I am confident in our members' abilities to prepare for and embrace this evolution of our industry and help to guide consumers in the new landscape.'
While the changes will benefit sellers, they could also cause significant disruption to the livelihoods of the NAR's 1.6 million members.
'I feel like realtors are getting an unfair reputation from this,' agent Desirae Wykoff told DailyMail.com after the Missouri ruling. 'I could see a lot of these people hanging up their license.'
Realtor Desirae Wyckoff previously told DailyMail.com last year: 'I feel like realtors are getting an unfair reputation from this.
Real estate agents will see big changes to the way their fees are charged and paid
'When you're on the outside looking in at this profession, it looks like easy money. It looks like you do a little bit of work for a lot of money but that is not at all what it is,' she told DailyMail.com.
Meanwhile, $418 million has been set aside to pay compensation to Americans who were overcharged by brokers.
Homeowners who sold properties in the last seven years may now qualify for a payout - though they must submit a claim by May 9, 2025.
Eligible sellers must have listed the home on a multiple listing service (MLS) and paid a commission to a real estate brokerage.