There has been a change in how buyer’s agent commissions are handled, and while you may have heard about it, many people are still unclear on what it actually means.
In 2024, the National Association of Realtors (NAR) reached a landmark legal settlement that changed how buyer’s agent commissions are handled, with the new rules taking effect on Aug. 17, 2024. While the intent was to increase transparency, it has also made it more difficult for Realtors to do our jobs. In my opinion, how much I get compensated should never come into play when negotiating for my clients, yet this new rule has now made it part of the negotiation process. Because of this, it is more important than ever for buyers to understand what they are signing and to have a clear discussion with their agent about how commission will be handled. I’ll cover this in more detail in the buyer section.
HOW IT USED TO WORK
Traditionally, when a seller listed their home, they agreed to pay a total commission (often around 5–6%), which was then split between the listing agent and the buyer’s agent. From the buyer’s perspective, it often felt like their agent was “free,” because the seller was paying the commission. However, that cost was typically built into the price of the home.
WHAT HAS CHANGED
The new rules have introduced three major changes that impact both buyers and sellers:
- Buyer’s Agent Commission Is No Longer Pre-Set by the Seller
- Sellers are no longer required to offer compensation to the buyer’s agent when listing their home.
- The buyer’s agent commission is no longer automatically included in the listing.
- Compensation is now negotiated separately.
- Buyers Must Sign a Written Agreement with Their Agent One of the most significant changes from the settlement is the requirement for buyers to sign a Buyer Broker Agreement before viewing any property. This agreement outlines the terms and responsibilities between the buyer and their agent, including:
- The agreed-upon compensation amount (usually a percentage of the sale price).
- The responsibilities of both parties.
- The duration of the agreement.
This new agreement makes the buyer responsible for compensating their agent.
WHAT THIS MEANS FOR BUYERS
By signing the Buyer Broker Agreement that outlines how their agent will be compensated, buyers are agreeing, upfront, to a specific compensation structure with their agent. The reality is that most buyers are not planning (or able) to pay their agent’s compensation out of pocket. Because of this, the buyer’s agent’s compensation is still being negotiated as part of the offer, with the expectation that the seller will cover it.
WHAT WE’RE SEEING RIGHT NOW
Since the rule changes took effect in August 2024, sellers are still willing to pay the buyer’s agent compensation – at least for now. In most cases:
Sellers are still willing to offer compensation to the buyer’s agent.
That compensation is negotiated as part of the purchase contract.
It becomes just one more term alongside price, repairs, and closing costs.
However, where things can become more complex is when there is a gap between what the buyer agreed to pay their agent and what the seller is willing to offer.
WHEN THERE’S A COMPENSATION GAP – POTENTIAL OUT-OF-POCKET COSTS
Let’s say a buyer signs a Buyer Representation Agreement agreeing to pay their agent 3%.
The buyer makes an offer and asks the seller to cover that 3%, but the seller counters and agrees to pay only 2.5%.
At that point, the buyer is still contractually obligated to their agent for the full 3%
This is where understanding your agreement upfront is critical.
WHAT ARE THE OPTIONS?
If there is a shortfall between what the seller offers and what the buyer agreed to, there are a few possible options:
- Renegotiate with the Seller The buyer can counter and request that the seller cover the full agreed-upon compensation.
- Agent Adjusts Their Compensation In some cases, the agent may agree to accept a reduced commission to keep the deal together.
- Buyer Covers the Difference The buyer agrees to pay the gap out of pocket (in this example, the 0.5%).
- Walk Away from the Transaction If the terms no longer make sense financially, the buyer may decide not to move forward and continue their home search.
WHY THIS CONVERSATION MATTERS EARLY
This is one of the most important conversations buyers should have with their agent before signing any agreement. Understanding:
- What compensation is being agreed to
- Whether the agent is flexible if there is a shortfall
- How that situation would be handled
In the current market, where sellers are still offering buyer’s agent compensation, that expense is typically factored into the home’s asking price.
If you’re thinking about buying or selling and want to better understand how buyer’s agent compensation works in today’s market, please don’t hesitate to reach out.