The National Association of Realtors (NAR) will implement changes to its real estate transaction commission rules starting on August 17.
Earlier in March, the NAR reached a settlement in a class-action lawsuit by agreeing to pay $418 million. The lawsuit alleged that the industry had conspired to require excessive agent commissions.
As a result of the settlement, significant changes will be made in real estate transactions, including the prohibition of commission offers and other compensations on Multiple Listing Services (MLS) and the requirement for Buyer Representation Brokerage Contracts (BRBC).
With these changes, commissions can no longer be listed on MLS, but negotiations outside MLS are still permitted. Additionally, like sellers, buyers will now be required to sign a written agreement before touring homes.
Buyers and agents will agree on commission payments, whether it’s a fixed fee or a specific percentage of the purchase price.
The California Association of Realtors (CAR) continues to update contract forms for buyers and agents, with an additional five-page appendix added as of July 24.
The Korean-American real estate industry expects the new regulations to enhance transparency in commission payments, simplify transaction negotiations, and potentially reduce commission rates. However, they also foresee an increase in financial burdens on buyers.
Mark Hong, president of the Korean Real Estate Association of Southern California, explained, “Even with the changes, if a seller wants to receive the highest offer, they can still propose a commission to the buyer’s side. The methods of negotiation can also change depending on the market situation, just as commission negotiations were possible before.”
Traditionally, sellers were responsible for paying commissions to both the seller’s and buyer’s agents, and the seller’s agent would list the property on MLS along with the commission details. Now, sellers can choose not to pay the buyer’s agent’s commission, allowing them to save on brokerage fees.
Previously, buyers had limited negotiating power regarding pre-determined commissions. Consumer groups now predict that buyers will have increased negotiation leverage by signing contracts that include the agent’s commission.
Some believe that this change will ultimately benefit buyers. In the past, sellers paid the buyer’s agent commission out of the proceeds from the home sale, often inflating the asking price above the home’s value.
This commission was effectively included in the home price, which buyers had to pay back through their mortgages. With buyers directly responsible for the commission from the outset, home prices might see a slight decrease, and buyers will have the advantage of negotiating fees directly with their agents, allowing them to select more competent agents.
Ihae Bong, CEO of Master Realty, noted, “Buyers paying the commission directly will improve transparency in property showings.”
However, a downside is that buyers may face additional financial burdens due to the commission payment.
If sellers’ commission costs decrease, they may be able to lower their asking prices, which could also lead to an increase in listing inventory.
While some believe that home prices may experience a slight decline in the long term, this will largely depend on market conditions.
According to Bong, in a seller’s market, it’s uncertain whether sellers will immediately lower listing prices just because commission costs decrease. Conversely, in a buyer’s market, sellers may choose to pay part or all of the buyer’s agent commission to attract the highest offers. There’s also the possibility that buyers may request dual agency with the listing agent to avoid commission payments altogether.
BY EUNGYOUNG LEE, YOUNGNAM KIM [lee.eunyoung6@koreadaily.com]
