Q: We have decided to sell our home, but we haven’t done this for a long time. With the National Association of Realtors (NAR) new commission changes, will this change our strategy for setting our listing price?
A: With this spring’s lawsuit settlement, the NAR’s new real estate commission policy just took effect. Understanding its impact is wise, but it honestly might not result in much of a practical change.
The NAR’s new policy results in two changes in how buyers and sellers deal with their agents. The end result is greater transparency through clearer disclosure.
Under the old system, through the MLS listing system, the buyer’s agent (and, often, not the buyer) would see how much of the commission the seller’s agent was willing to share with them. This behind-the-scenes practice is no longer allowed.
Under the new system, the buyer’s agent now needs to present a written agreement to their client that spells out their commission and must be signed before showing any property to them. Buyers will know what their agent will be doing for them and what they will be paying them for their services.
These are good changes, but beyond greater transparency through clearer disclosure, it might not make much of a difference with the true economics.
Let’s say you list your home for $600,000. Under the old system, you might have paid a 5% commission to your agent. You would receive proceeds of $570,000, after the commission expense. And, your agent would have then turned around and shared part of their $30,000 commission with the buyer’s agent. That was the behind-the-scenes part.
Now, unless an agreement is struck openly between the two agents on commission sharing, the seller and the buyer will each have to pay a commission to their own agent. As the seller, let’s say that commission is 3%. And, let’s say the buyer agent’s commission is 2%. Yes, it’s the same 5% in total, but the buyer and seller are each paying their own part.
So, how will this new commission arrangement affect a deal? Well, obviously the buyer won’t just blindly pay more than $600,000 for your home, with their 2% commission cost added on top. To offset their commission expense, they’ll actually want to negotiate a lower price of $588,235, to be exact. And, if you agree to sell your home for $588,235, then your own agent’s 3% commission will reduce your net sales proceeds to $570,588. As you can see, that net amount is awfully close to the same $570,000 you’d get under the old, less-transparent 5% commission-sharing setup.
While this new policy change might feel like much ado about nothing, in all practicality, I think the real estate industry will be commensurately more transparent. In my book, that’s always a win.
