(This column originally appeared in The Inquirer)
New rules going into effect in August will allow buyers and sellers to more easily negotiate the commissions they pay their agents on residential real estate transactions, significantly impacting the businesses of an estimated 100,000 realtors in Pennsylvania and New Jersey.
The rules are the result of a lawsuit settled by the National Association of Realtors (NAR). Under the new system, commissions will no longer be paid entirely by sellers, and most buyers will enter into written agreements with their agents about how much they will pay. Previously, real estate commissions — which generally range between 5% and 6% of a home’s sales price — were generally considered to be non-negotiable. Now, everything’s up for grabs.
If you’re a home buyer or seller, this will give you more flexibility and could lower your costs. If you’re running a real estate agency, however, this change could introduce new challenges, and for some, new opportunities.
Some agents, like Mark Wade, a Philadelphia-based realtor at Berkshire Hathaway HomeServices and Fox & Roach Realtors, believe this could drive many realtors out of the industry.
“The new rules will eventually change the business model of selling real estate in many ways, and I think the NAR will lose a significant amount of membership because of it,” he said.
Residential reality businesses will face disruptions
Some realtors are concerned, however, that the disruption may drive away business.
“Many sellers and buyers will be confused and may choose to sit out until the process unfolds,” said Martin Rodriguez, a realtor and real estate consultant for Keller Williams Realty in Philadelphia.
Another complication: Because mortgage companies have historically only financed the seller’s commission as part of the home price, there will be some time before the industry adjusts to also allow the buyer’s commission fees to be financed. Like many in the industry, Rodriguez predicts that this will impact the sales process in the short term but will ultimately be worked out.
“I think there will be six months to a year of a transition period until lenders allow buyers to finance their buyer agent commission and then once that occurs, the home buying process will be simplified,” she said.
MaryAnn Baenninger, a realtor at Keller Williams Realty in Doylestown, is concerned that some buyers, particularly first-time buyers, could be further priced out of the marketplace, because in addition to saving for a down payment and closing costs, they will now have to save for the buyer’s agent commission, and this could force them into purchasing a lower priced property, or not purchasing at all.
“Sellers will need to be counseled by their agents about whether or not to offer buyer’s side commission, and the impact of their choices on ‘traffic’ when their listings are on the market, and, in the end, their net proceeds from the sale,” she said.
Some things will change, some things won’t
Other realtors don’t think the change will impact their business significantly.
Baenninger says that the financial aspects will likely remain the same, but the process will change.
“Previous compensation from the seller to the buyer’s agent was posted in the Multiple Listing Services (MLS) database, for all to see but under the new regulations, that compensation cannot be posted,” she said. “If the seller is offering such compensation up front (e.g. prior to negotiations), that information will have to be relayed on a case-by-case basis by the seller’s agent to the buyer’s agent.”
Wade feels that, regardless of these commission changes, customers will always pay their agents accordingly when they see value.
“Today, I often see motivated sellers pay a full six percent commission and add a ‘Selling agent Bonus’ of up to $10,000,” he said. “So now someone will wave a magic wand, and that added $10,000 motivation to sell a home (in a somewhat stagnant market) will go up in a puff of smoke? I don’t think so.”
Change brings opportunities
Rodriguez said that a buyer who is seriously looking will sign and commit to working with someone. But for those who are just browsing, some may refuse to sign with an agent right away and visit an open house instead.
Wade predicts that real estate lawyers will see their business grow with buyers seeking an attorney instead of a realtor. He also agrees with Rodriguez that the change will “mark the return” of the open house, whose popularity has waned since the start of the pandemic.
“New buyers coming into the market may rely upon this informal ‘meet and greet’ with their potential new home before signing a buyer’s contract with a specific agent,” he said.
Realtors who are on top of their numbers, continually invest in their skills, and show value to their customers will — as any successful entrepreneur — be the ones who do the best in this changing environment. Rodriguez, for example, said he is doing just that.
“I am making sure that I keep my buyer’s presentation updated and I am going through weekly training sessions that provide tools to navigate through these uncertain times,” he said. “I have a spreadsheet that adds up all the discounts I negotiated for my clients that shows my value proposition.”
Because of all the changes, real estate agents who have strong communication skills will likely be the ones that succeed the most.
“I personally come from an education background, so my approach to selling real estate is to educate, educate, educate,” said Baenninger.
Wade thinks that this will also bring big opportunities to those realtors that are open to change.
“Because the fee structure is changing, I think there will be a new kind of realtor, a transactional coordinator, who will help buyers navigate a transaction with a la carte services,” he sai
