Starting Saturday, new regulations in the residential real estate sector will introduce unfamiliar procedures for home buyers and sellers, which could lead to some confusion.

These “practice changes” are a result of a 2023 court ruling regarding the compensation of real estate agents.

In the past, when a property sold, the seller typically paid a commission of around 5% to 6%, which was then split between the buyer’s and seller’s agents. The lawsuit argued that this arrangement inflated commissions and required sellers to pay the buyer’s agent, which many found unfair.

“The whole structure of the industry often seems illogical,” remarked Stephen Brobeck, a senior fellow with the Consumer Federation of America, who has been advocating for changes in realtor commissions for many years. “The main point was that it wasn’t right for sellers to pay both the listing and the buyer’s agents.”

Under the new rules, sellers must now decide how much, if anything, to pay the buyer’s broker. This compensation information cannot be listed in the “multiple listing service” (MLS), the official database used by local realtor associations.

However, sellers can communicate their compensation offers informally through phone calls, text messages, or by promoting it via social media, signs, or other casual methods.

Additionally, buyers will have to sign a contract with their broker before they begin looking at homes. This agreement must clearly specify the compensation expected by the broker.

There is some flexibility in the specific terms. A recent update from the National Association of Realtors clarified that compensation must be concrete (e.g., $0, a flat fee, a percentage, or an hourly rate) and cannot be open-ended (e.g., it cannot state ‘the buyer broker’s compensation will be whatever the seller offers’).

“Every time we engage with consumers about the value we add to their transaction—one of the largest financial commitments they’ll make—we want to outline our compensation, which is negotiable, that’s a positive development,” commented Kevin Sears, President of the National Association of Realtors.

This influential organization represents more than 1.5 million members, around 85% of the real estate agents nationwide.

“The more knowledgeable consumers are, the better the outcome for everyone involved,” Sears emphasized.

Many changes are not newground for several agents, buyers, and sellers. Numerous states already require buyers to sign a broker agreement before proceeding. Additionally, alternative brokerage models, like Redfin, have made homeowners more aware of options beyond the traditional model of paying 3% to both the listing and buyer’s agents.

Nonetheless, many agents are perplexed about what these changes mean practically. For instance, if a buyer has the funds to pay their broker only a certain amount but falls for a home that exceeds that price, what then? Conversely, if the seller is willing to pay the broker, how does that affect the buyer?

Some agents suggest that the attempt to enhance transparency is only increasing confusion.

“Now, a buyer’s agent has to contact every listing they plan to show to confirm the commission details,” noted Aaron Farmer, owner of Texas Discount Realty in Austin.

In Austin’s rapidly changing market, where inventory of unsold homes is rising, Farmer believes sellers would likely want to offer compensation to entice buyer’s brokers. However, this might not be the situation everywhere, and he is concerned that personal pride could interfere with sound business judgments in some deals.

Andi DeFelice, who owns Exclusive Buyer’s Realty in Savannah, Georgia, believes first-time buyers may be the most affected by these new rules. Those who are already financially strained might struggle to afford commission fees and may have to negotiate without professional help.

“We shouldn’t put our clients in a position where they lack representation during such an important transaction,” DeFelice warned. “For newcomers, navigating this process can be daunting. Do you have connections for a termite inspector, insurance agent, or lender? There are numerous aspects to consider.”

DeFelice is optimistic that the industry will overcome this “hiccup” created by the new rules and adapt swiftly, but others foresee more significant shifts coming.

“For consumers, there won’t be immediate changes,” Brobeck stated to YSL News. “However, this is like a dam beginning to leak. I am quite confident that in five years, the landscape of the industry will change considerably.”

The farmer from Texas Discount Realty shared his thoughts.

“I’m noticing a lot of people saying, ‘I’m leaving the industry; I can’t handle the changes,'” he explained. “I believe that having fewer agents could actually benefit the industry. It would allow for lower commission rates and potentially higher transaction volumes.”