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Saving Thousands with New Real Estate Laws
Do you still need a realtor?
Dollar Dad
August 28, 2024
In partnership with
Read time: about 6 minutes
Welcome back, fellow parent
It’s no secret that buying or selling a home can be one of the most stressful experiences, especially for parents juggling busy schedules, school runs, and work.
I remember when we bought our first home almost a decade ago —it felt like a full-time job just trying to keep up with all the paperwork and decisions. My realtor at the time was a lifesaver, guiding us through every step, not to mention the year of searching and 20 house tours.
Reminds me of one of America’s favorite realtors, Phil Dunphy:
Gif by realtordotca on Giphy
Fast forward to today, and the real estate landscape has seen a massive shift. With the rise of platforms such as Zillow, Realtor.com, and Redfin, buyers are much more savvy shoppers. There are also countless tools and checklists available to help you every step of the home-buying process, including questions to ask and how to find a lender.
My wife and I have personally bought and sold a few homes, and typically send our realtors the houses we want. Plus, I’m no schmuck when it comes to reading and negotiating contracts. Makes me wonder if it’s worth spending the commission on a buyer’s agent.
But it didn’t really matter because the seller covered the full commission fee. Until now.
Earlier this month, the recent settlement involving the National Association of Realtors (NAR) introduced new rules that change how commissions are handled between buyers, sellers, and realtors. This change could have a big impact on your family's home-buying or selling experience, and it's important to know what it means for you.
Impact to Buyers
If you’re a current homeowner and plan on selling soon, I’ll get to y’all in a moment. Let’s start with the homebuyers.
Before the settlement, it was standard for the seller to cover the buyer’s realtor commission, but now it’s on you (unless you can convince the seller to pay).
This means as a buyer, you may find yourself negotiating commission fees directly with your realtor, which could potentially save you money. But it also adds a new layer of responsibility. You’ll need to be more informed about what services your realtor provides and whether those services justify the cost.
According to the NAR, these changes will increase transparency and give buyers more control over their home-buying experience.
You’ll have the freedom to choose a payment structure that suits your needs, whether that’s a flat fee, hourly rate, or a traditional commission. Services and compensation will need to be negotiated up front, and be clearly stated in writing.
The pro of this is transparent pricing and if you’re a savvy buyer, you can negotiate a lower rate for fewer services. The con is that you’ll be stuck in a specific service package which could cost you down the road.
The changes will likely lead to a surge in flat-fee or lower-commission realtors. Which could be good for homebuyers, but sometimes you get what you pay for. Time will tell.
Important Things to Know:
Before you can even look at homes, you’ll need to sign an agreement with your buyer’s agent, including how they’ll be compensated.
You may need to be pre-approved by a lender before touring a home. Make sure it’s a “soft pull” of your credit so that you don’t risk damaging your score.
Now that you’re paying for your own agent, you’ll need to budget accordingly. You currently can’t roll it into the mortgage either, meaning your closing costs just got a hefty bump. Hopefully, the rules will change in the future so you can pay it down over time.
The last point above makes me the most nervous and limiting for homebuyers in our current real estate environment (which is already out of reach for many).
A quick example:
Let’s say you’re buying a home for $400,000 and the average commission rate for both agents was 6% total. In the past, the seller would pay $24,000 in commission ($400k x 6%), which would be split by both agents.
With the new rule, you’d be responsible for the buyer agent’s commission. This means you’d be on the hook for $12,000 in commission using the above scenario.
The “experts” are already arguing if the changes will lower housing prices. I personally think it will depend. Hot markets will remain hot as inventory is low, but cool markets may dip in price.
Below is an article from the NAR if you want to read more about the changes.
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Impact to Sellers
On the flip side, the new rules look great if you’re selling your home.
In the above scenario, you’re now saving $12,000! That’s a huge deal.
No longer being shackled to paying commission for two agents is wonderful, and can greatly increase your profit when selling a home.
The double-edged sword of it though is that you’ll now need to get more creative in making your home more attractive to potential buyers, especially in a competitive market.
One lever you can pull very easily is pricing. With the removal of the obligation to pay the buyer’s agent, you might be tempted to lower your listing price. Be mindful though, a lower price will definitely bring in more buyers, but you can miss out on potential profits. Consult with your realtor to find the right balance based on your market’s dynamics.
Another option is to offer alternative incentives to buyers - including covering closing costs or repair costs. To minimize a buyer’s cost upfront, you can be flexible on amounts needed for due diligence and earnest money.
One last approach to consider is to be flexible on the time it takes to close your home. Many buyers are pressured to close as quickly as possible (sometimes within weeks). Providing an extended closing will give the buyer peace of mind, especially those with families who are juggling a ton at once.
If you want to read more on the home seller side, here’s an article with additional details from the NAR:
Do you still need a realtor?
With all these changes, the big question is:
Do you even need a realtor anymore?
It’s a valid question, and the answer depends on your personal circumstances.
Pros of Using a Realtor:
Expert Guidance: Realtors are trained professionals who know the ins and outs of the real estate market. They can provide valuable insights into market trends, property values, and the overall buying or selling process. This expertise can be especially beneficial for first-time buyers or sellers.
Negotiation Skills: A good realtor can help you get the best deal possible. They’re skilled negotiators who can advocate on your behalf, whether you’re trying to secure a lower price as a buyer or maximize your sale price as a seller.
Access to Listings and Customers: Realtors have access to MLS (Multiple Listing Service), giving you a broader view of available properties. Most realtors also have an existing customer base, meaning they’ll get your home in front of homebuyers almost instantly.
Local Connections: A good realtor can help you with just about anything you need when it comes to buying or selling a home. From creating the listing with professional photos to coordinating repairs and finding a loan, realtors are very well-connected and typically have more pull in the community than the average Joe.
Handling Paperwork: Real estate transactions involve a lot of paperwork, from contracts to disclosures to inspection reports. A realtor can manage all of these details, ensuring that nothing is overlooked and that all deadlines are met.
Cons of Using a Realtor:
Commission Costs: The most obvious downside to using a realtor is the cost. For a $400,000 home with a 6% commission rate, the total commission comes out to $24,000. That’s $12,000 in commissions for both the buyer and seller.
Potential for Conflicts of Interest: In some cases, realtors may prioritize their own financial interests over yours, especially if they’re representing both the buyer and seller in a transaction (a situation known as dual agency). This can lead to less-than-optimal outcomes for you.
Limited Availability: Some realtors may not be as available as you’d like, especially if they have multiple clients. This can lead to delays in communication and potentially slow down your buying or selling process.
Not Always Necessary: If you’re experienced in real estate or buying a property from someone you know, you might not need a realtor’s full range of services. In such cases, you could save money by handling the transaction yourself or hiring a real estate attorney to assist with the paperwork.