The Future of Real Estate Commissions – What You Need to Know
Apr 10, 2024 brooklyn,brooklyn real estate,Brooklyn Real Estate Agency,brooklyn real estate agents,brooklyn realty,nyc,nyc laws,real estate,realty collective,ruling
The real estate landscape is on the cusp of a significant transformation, particularly in how real estate commissions are structured. Recent developments have sparked conversations, and perhaps even excitement, among home sellers and buyers alike. Headlines touting slashed real estate commissions and the promise of cheaper home-selling costs have flooded our news feeds. But amidst this buzz, clarity on what these changes truly mean for you – whether you’re selling your cozy corner of Brooklyn or hunting for your dream home – remains elusive. We aim to change that.
At Realty Collective, we’ve always believed in transparency, community engagement, and providing our clients with the insights and advice they need to make informed decisions. Whether these changes lead to lower costs for sellers, greater clarity for buyers, or a reshaping of the real estate transaction process, we’re here to ensure that your real estate experience remains positive, clear, and in line with your goals.
A Closer Look at the Changes
First, it’s important to understand that any changes to real estate commissions aren’t yet set in stone. They stem from a proposed settlement that, if approved by the courts, could reshape the commission landscape as early as mid-July 2024. The crux of the proposal includes a new MLS rule that would prohibit the public disclosure of broker compensation offers on MLS listings. However, this doesn’t eliminate the possibility of broker compensation; it simply moves that discussion off the MLS platform.
Another change is the requirement that buyer’s agents formalize their relationships with buyers through written agreements. Realty Collective has long engaged in this practice of formalizing our client relationships because we feel creates transparency and ensures our buyers are well-informed about the services and value they receive in exchange for the compensation their agents receive. Soon, other brokers may follow suit.
What This Means for Sellers and Buyers
For sellers, the implications are multifaceted. On the surface, it might seem like a move toward reducing selling costs, but the reality is more complex. The proposed changes don’t explicitly prevent sellers from compensating buyer’s agents — compensation that has traditionally been a significant part of how agents are paid. The new rules might shift how these payments are discussed and agreed upon but not necessarily their existence. In NYC, the complexity of deals — especially those in co-ops — fuel the need for expert advice on both sides of the deal to get everyone to the closing table. It is something brokers have always recognized and that is why they are more likely to encourage a seller to pick an offer where the buyer is well educated and has guidance from an agent.
Buyers, on the other hand, will now be nudged toward entering written agreements with their agents, clarifying compensation expectations upfront. This could mean a shift toward buyers bearing a more direct responsibility for their agents’ fees, potentially impacting their overall purchasing costs.Experts over at Lighter Side of Real Estate have laid out some key things to consider when it comes to this new potential ruling.
Here Are Some Things to Keep in Mind if You’re Selling a House…
- It doesn’t mean that you can’t offer a commission to buyers’ agents.
- Although you can’t publish how much you’re willing to offer or agree to on your listing, in most cases, it will still benefit sellers to offer and be willing to offer commissions to buyers’ agents in order to get the maximum marketing exposure for their home, the most savvy and experienced buyers and ultimately the best offers possible.
- There’s a good chance that buyer agent commissions will likely still be paid through the proceeds of the sale, as they have been for many years.
- If you’re selling to a buyer who doesn’t have an agent representing them, they’ll likely expect you to drop your price accordingly since you’re not paying another agent. In other words, if your house was worth $300,000, and buyers perceive that a buyers’ agent commission would have been 3% — even though it rarely was in reality… but that’s what the public and media have often perceived it to be — then the buyer will want a $9,000 reduction on your price below what they already want to negotiate as the fair market value. Represented buyers getting advice from their agent will have the most competitive and educated offers for your property in most scenarios.
- It could cause more risk and lawsuits that may directly involve you and your property. Dual agency, which is when an agent represents both the buyer and the seller, is one of the leading causes of lawsuits in the industry. This new way of doing business could create a lot more situations where consumers don’t have their own independent representation, which could lead to either the buyer or seller feeling like their interests weren’t entirely represented.
Here Are Some Things to Keep in Mind if You’re Buying a House…
- The way buyers’ agents have been paid is a result of originally trying to protect buyers decades ago. Years ago buyers didn’t have an agent dedicated to representing their interests, and were often unaware that the seller’s agent didn’t actually represent their interests as well. So rules and laws were passed to change that, and listing agents were compelled to offer buyers agents a percentage of the commission if they represented a buyer on a house they were listing. This gave buyers more choice in who represented them, and the ability to compensate their agent without having to pay out of pocket. So, for many buyers, this isn’t that great of a change for you unless you cherish the idea of representing yourself and figuring out how to do everything that needs to get done.
- You will now have to choose a buyer’s agent and sign an agreement with them. This has always been an option, and it could be argued that it should always have been required, but most buyers’ agents didn’t want to seem too pushy or aggressive, so they never asked for one. Now you’ll need to sign a contract to work with them.
- Don’t expect agents to be willing or able to work for a much lower commission than they’ve been working for in the past. According to recent data from the National Association of REALTORS®, the average agent earns between $44,951 and $58,528. And they work long and hard to even earn that much. There is rarely a day off, let alone a vacation, and they easily work more than 40 hours per week. Will you be able to find an agent who will work for lower rates? Perhaps. But as is the case in any industry, sometimes going with the lowest cost option ends up costing you more in the end.
- While you may expect sellers to drop their price because they don’t have to pay a buyers’ agent, don’t be surprised if they dig in their heels and expect to get as much or more than similar houses have recently sold for. They will still be basing the market value of their house off of data that had buyer agent commissions factored in.
- If you go it alone, go in knowing that finding the right house, understanding market values, negotiating the best deals, and handling everything involved throughout the process from contract, board interview and application, to closing isn’t as easy as it may sound. There is more to buying a house than just finding it online, making an offer, and then going to a closing. You will have to do the work your agent would have done, and know what needs to be done in the first place. The sellers’ agent won’t be doing the work of the non-existent buyers’ agent, especially without compensation for it.
- Discount brokers may offer to represent you but, in NYC, their track record has often been mediocre, at best — which, in the negotiation-heavy and reputation-led field of real estate may ultimately work against you at the bargaining table. In the end, saving a little bit of money by going with a discount broker could cost you much more money in the long-term.
Navigating the New Landscape
In a city like Brooklyn, where the real estate market is as vibrant and diverse as its communities, these changes could have varied impacts. Sellers might find themselves reevaluating how they list and market their homes, while buyers could be looking at different financing calculations.
What’s crucial in all of this is the guidance of knowledgeable real estate professionals who can navigate these changes. At Realty Collective, we’ve always believed in transparency, community engagement, and providing our clients with the insights and advice they need to make informed decisions. Whether these changes lead to lower costs for sellers, greater clarity for buyers, or a reshaping of the real estate transaction process, we’re here to ensure that your real estate experience remains positive, clear, and in line with your goals.
The Bottom Line
While the headlines about changing real estate commission structures might sound revolutionary, the truth is more nuanced. Sellers and buyers alike would do well to stay informed, seek professional advice, and consider how these changes could affect their real estate decisions. As we await further developments and the potential implementation of these changes, the team at Realty Collective is here to answer your questions, offer our expertise, and guide you through the evolving real estate landscape of Brooklyn and beyond.
For more insights and updates on the real estate market, stay tuned to our blog and feel free to reach out to us with your questions and real estate needs.