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Typically, homebuyers and sellers in the U.S. each have their own real estate agent to represent them, although that’s not mandatory. While other models exist such as flat-fee real estate services and for sale by owner arrangements, most real estate agents are paid a commission based on a percentage of the sales price. The negotiable commissions, often totaling 5% or 6%, would be paid after the closing from the seller’s side of the balance sheet and split between the two agents. After several lawsuits against the National Association of Realtors (NAR) and multiple real estate brokerages, policies and traditions are set to change.

Real estate agent commissions are negotiable as always.

New NAR policies no longer allow sellers to advertise commission payments for buyer’s agents.

Buyers who hire their own agents must sign a written agreement that spells out the agent’s compensation.

What Is the NAR Lawsuit Settlement

In 2023, a class action lawsuit was filed against NAR and several real estate brokerages claiming that the policy of “cooperative compensation,” in which sellers offered a commission split between the listing agent and the buyer’s agent, unfairly boosted commission rates. While commissions are negotiable, typically the seller and listing agent would negotiate on the percentage of the sales price that would be paid and how it would be split.

More than 20 similar lawsuits were filed on behalf of sellers who thought they had overpaid agents. The NAR settlement agreement, which has preliminarily been approved by a judge and is likely to be finalized in November 2024, offers compensation of $418 million along with policy changes.

What Are the New Real Estate Commission Rules?

Many elements of the typical real estate transaction will remain the same. Commissions can be negotiated by home sellers with their agent and by homebuyers with their agent. But two main policy changes that are part of the lawsuit agreement will be implemented this summer even before the settlement is finalized, according to NAR.

The new policies include:

Agents can no longer list compensation on Multiple Listing Services (MLS), which are databases that provide information on properties for sale. Agents and sellers can continue to offer cooperative compensation privately.

Agents who work with buyers must sign a written agreement that spells out their relationship and responsibilities along with their expected compensation.

What the Commission Changes Mean for Homebuyers

The biggest change for homebuyers is that they should no longer assume the commission for their buyer’s agent will be automatically deducted from the seller’s side of the transaction at closing.

There are multiple options for buyers to consider, such as:

Hire a buyer’s agent and pay them a commission based on the sales price from their own funds.

Hire a buyer’s agent and pay them a fee for individual services, such as negotiating, or on an hourly basis.

Ask the seller during the purchase negotiation to pay for all or part of their agent’s commission.

Ask the seller to provide a lump sum concession at the closing that can be used for anything such as closing costs, buying down the mortgage rate or the agent’s fee.

Ask the seller’s agent to serve as a dual agent to facilitate the transaction on behalf of both the buyer and the seller.

Handle the real estate transaction without an agent.

It remains to be seen how buyers adapt to new commission practices and whether sellers will continue to offer cooperative compensation during negotiations. Some real estate experts worry that first-time homebuyers and buyers with low-to-moderate incomes will have a more difficult time paying a real estate agent to represent them since they already struggle to accumulate the cash they need for a down payment. Others believe that new policies will help reduce real estate agent commissions and lower the overall cost of homeownership.

What the Commission Changes Mean for Sellers

While buyers will need to determine how to pay their real estate agents, sellers will also have a new decision to make: whether to offer to pay their buyer’s agent. Sellers and their agents won’t be able to advertise commission information on the MLS, but they can still offer to contribute to the buyer’s agent’s fees privately.

Unless homeowners choose to sell their property themselves, the relationship between the sellers and their listing agent will remain the same. Sellers can negotiate with their agent to determine how much the commission will be for selling the property or pay them a flat fee for specific services.

Options for sellers under the new commission policies include:

Pay only the listing agent.

Offer to pay the buyer’s agent commission through private communication between the listing agent and the buyer’s agent.

Negotiate to pay part of the buyer’s agent’s commission during the purchase contract negotiations.

Offer to pay closing costs or to provide a concession to buyers at the closing that they may use for any purpose.

Sell the property as a For Sale by Owner transaction without paying any real estate agent fees.

How sellers handle commission payments is likely to depend on local market conditions. If there are few homes for sale and an abundance of buyers, sellers have less incentive to offer to pay a buyer’s agent commission. They’re likely to feel they can attract buyers without needing to entice them by offering to pay their agent’s commission. But if markets shift and sellers face more competition, homeowners may decide they would rather pay the buyer’s agent’s commission instead of dropping their price. Buyers may be more likely to ask for that fee to be paid during negotiations if they have plenty of other properties to buy.

Do I Need a Realtor to Buy a House?

Real estate agents are not a mandatory part of any real estate transaction. But just 7% of real estate transactions in 2023 were For Sale By Owner, according to the National Association of Realtors’ 2023 Profile of Home Buyers and Sellers, and 89% of both buyers and sellers hired a real estate agent to help them.