New National Association of Realtors Rules Have Restructured How Real Estate Commissions Are Paid
Following the National Association of REALTORS (NAR) settlement, some major changes have occurred for buyers and sellers of real estate in the United States and the state of Florida. These new NAR changes went into affect on August 17th, 2024 and have redefined how real estate agents get paid. These changes may not seem significant, but they have made the whole process much more transparent, which is a good thing.
Here is a summary of the new NAR practice changes.
- Buyers are required to enter into a written agreement with their broker before they can tour any homes. There are many versions of these agreements in the marketplace. At By The Sea Realty, we have several options for our buyers based on their situation and services required.
- Listing brokers can no longer make offers of compensation to buyer brokers through the MLS. Sellers can still pay the buyer broker a commission, and in most cases they still are. Listing brokers can still advertise buyer broker commissions, just not in the MLS.
- Our new listing agreements and buyer brokerage agreements have very clear disclosures stating that commissions are fully negotiable. Commissions have always been negotiable, but the new rules require much more transparency. Again, this is a good thing!
The Traditional Commission Structure
Prior to August 17th, 2024 most brokerages followed the traditional commission structure that had been in place for decades. In most cases the seller would pay a percentage of the purchase price that covered the fees for both the listing broker and the buyer’s broker. The amount being offered to buyer brokers was advertised in the MLS for all brokers and agents to see. While this may seem transparent, many people argued that it led to steering. This meant that some buyer’s brokers were focusing more on properties that were offering higher commissions. This was obviously a disservice to buyers, who deserve to be presented with all properties meeting their criteria.
For sellers, the traditional structure presented different issues. Yes, commissions have always been negotiable, but with the traditional model the negotiations were often solely in the hands of the listing broker. Sellers were often locked into a total commission, no matter what the home ultimately sold for. Also, it may not be in the seller’s best interest to advertise a buyer broker commission before receiving an offer.
New Real Estate Commission Options in Florida
The Florida Association of REALTORS (FAR) updated their standard listing agreement (which we use) to provide sellers with 3 options for compensating listing brokers and buyer brokers.
Option A: The Traditional Model
This option is very similar to the traditional commission structure described above. The seller agrees to pay a total commission to the listing broker who can then advertise to “share” that commission with buyer brokers (not in the MLS). In some cases, this may be preferred by the seller if they trust their broker to conduct all negotiations and if they wish to offer the same commission to all buyer brokers.
Option B: Flexible and Negotiable
The seller agrees to pay a commission to the listing agent for listing and marketing services only. The seller also offers separate compensation to buyer brokers. With this option the seller retains the right to negotiate the buyer broker’s commission as part of the contract negotiations. Any fee paid to the buyer broker from seller must be in writing on a separate agreement. The listing commissions are not “shared” between brokers like the traditional model. Each broker is paid by the seller through separate written agreements. It is also possible that the buyer will pay their own broker and the seller will only be responsible for paying the listing broker commission. This option puts the seller in complete control and provides everyone with more flexibility in the negotiations.
Option C: No offer of Compensation to Buyer Brokers
This option is not recommended for most sellers since most buyers have their own agent that needs to be compensated. Also, many buyers are financing their purchase and may not have the resources to pay their own broker. However, this option may work well for sellers who are only entertaining cash offers and/or sellers who want to price their property more competitively.
Summary
The bottom line is that buyers now have more options and our real estate negotiations are much more transparent than they used to be. While we believe the new “Option B” is the best option for most sellers, we also recognize that the other options may be preferable for various reasons. As a seller, you should discuss your specific situation with your broker and choose the best option for you.
As a buyer, you should talk to your buyer broker about your expectations. If you cannot afford to pay your broker, make sure you are clear about that up front. As buyer brokers, it is our job to negotiate the best deal possible for you, including our commissions.
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