Whether you’re entering the real estate market to buy a home, sell a home, or both, the process can be very complex. Real estate is highly regulated and commonly involves loans with six-figure values or higher. A successful purchase or sale requires support from a variety of related businesses, like lenders and title companies.
Real estate agents help their clients, both buyers and sellers, navigate that complex market. So, it’s only natural to wonder how real estate agents get paid and where that compensation comes from. Additionally, a major settlement reached by the National Association of Realtors (NAR) in 2024 has potentially changed certain aspects of how Realtors are paid.
Buyers are especially curious about how those changes might affect them, and sellers are interested, too. Let’s take a closer look at real estate agent compensation in light of that settlement and the changes that came with it.
The Basics of Real Estate Agent Compensation
Real estate agents thoroughly support their clients, whether buyers or sellers, throughout a transaction. They dedicate time to all sorts of tasks, from answering their clients’ questions to helping with paperwork, recommending trusted professionals, and finding the right property for buyers and the right buyer for sellers.
The NAR settlement, once it’s in effect, will change certain aspects of real estate agent compensation but won’t affect others. Here’s a review of how buyers and sellers should expect to handle compensation for their real estate agents moving forward.
Real Estate Agent Compensation After the NAR Settlement
In the past, home sellers paid the commission for both the buyer’s and seller’s agent, as Investopedia explains. While this was not a legal requirement, it was the most common approach for compensating real estate agents and brokers.
That practice will likely continue in the future — the NAR settlement doesn’t’ expressly prohibit the seller from paying part (or even all) of the buyer’s agent’s commission. It simply leaves open the possibility of negotiation as to what that amount may be. For example, the seller could credit only part of the fee to the buyer. Depending on the circumstances, a buyer may pay their entire agent’s fee themselves. In all cases, the buyer and seller will negotiate to choose the option that works best for everyone.
There are likely a large number of buyers that would prefer not to absorb the buyer’s agent fee. those buyers will have the option to structure their offers accordingly. It’s important to note that the average seller will be most attracted to the offer that nets them the largest profit overall, regardless of the allocation of costs.
A buyer’s agent should disclose their fee when they meet with you for an initial consultation. They should also clarify that the fee can be covered by:
- Negotiating with the seller to pay the entire fee to the buyer’s agent’s brokerage.
- Negotiating with the seller to credit the buyer’s closing costs for the agent fee (whether partially or in full), to offset the buyer’s cash to close.
- The buyer assuming the cost of the agent’s fee.
For the first time, as a result of the NAR settlement, real estate agents are required to have a signed agency relationship agreement before performing ANY duties which require a real estate license. As a buyer, your agent should also point out that they will work with your lender to ensure contracts are structured in a way that makes financial sense for you.
The Bottom Line on Real Estate Agent Compensation
In practice, it’s not likely that much will change for buyers and sellers in individual transactions once the NAR settlement, if approved, goes into effect in August 2024.
The only major difference from the previous system is that, at closing, written instructions to the escrow agent for buyer’s agent compensation will not be pre-determined in the listing agreement. Instead, instructions for buyer agent compensation will be included in both the:
- Buyer-broker agency agreement (which sets the overall amount of compensation).
- The contract to purchase the home (which determines which part, if any, of the buyer’s agent commission is covered by the seller).
The larger process of buying and selling a home — the buyer delivering funds to the escrow agent, the escrow agent allocating the funds to address the many associated costs, and the leftover money going to the seller as net profit — will remain the same.
Looking for a real estate agent who can fully support you throughout the homebuying or home selling process? Nikki Lagouros can help! With deep knowledge and experience and plenty of connections across the real estate world, Nikki will put your interests as a buyer or seller first.