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Homebuyers now have to negotiate agent fees upfront—upending how the real estate industry has worked for decades

Homebuyers now have to negotiate agent fees upfront—upending how the real estate industry has worked for decades
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Homebuyers will now need to negotiate how much they pay their real estate agent before starting their home search — a rule change that's upended how home purchasing has worked for decades.

The change — effective Aug. 17 — comes from a court settlement involving the National Association of Realtors. Traditionally, both buyer's and seller's agents commissions of 5% to 6% of the home price were paid by the seller using the sale proceeds. Now, buyers must negotiate and pay their agent's fees separately.

The new rules open up an array of payment options for buyer's agents. These can include the traditional payout from the seller as a percentage of the purchase price, or a flat fee or hourly rate.

On one hand, buyers have much more flexibility in negotiating how much they pay for an agent. On the other hand, the options can be confusing for homebuyers who aren't sure what they should do. Here's an overview of what to know about the new rules.

You still might need a buyer's agent

While you might be able to save money by avoiding a buyer's agent altogether, it's probably not a good idea unless you have experience buying properties.

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In fact, 9 out of 10 homebuyers work with an agent because they offer local market expertise, assist in finding listings that meet their needs, handle all the paperwork efficiently and negotiate to secure the best possible price on their behalf, according to NAR data.

When you hire a buyer's agent, you'll need to sign a written agreement first

With the rule change, realtors representing buyers are required to have a written contract before they can start working on behalf of their clients. 

A buyer's agent agreement — also known as a buyer representation agreement — should generally include the following:

  • Terms of the agreement: Specifies how long the contract will last, whether it's a few weeks or months. It should be signed by both the buyer and agent.
  • Compensation, whether that's a percentage of the purchase price, a flat fee or an hourly rate. It should state who is responsible for paying it, whether it's the buyer, seller or both.
  • Scope of services: Outlines what the agent will do, like finding properties, setting up showings and negotiating offers.
  • Exclusive representation clause: Most buyer's agents agreements include a clause where the buyer agrees to work only with that agent for the duration of the contract. It's negotiable, though. 
  • Cancellation policy: This can include "no-fault termination" that lets either party walk away, usually within a couple weeks.
  • Legal compliance: This confirms that the agreement adheres to state and local laws, specifying the jurisdiction where disputes will be handled.
  • Confidentiality clause: States that any personal or financial information shared remains confidential.
  • Dual agency disclosure: If applicable, the agent must inform the buyer and the seller that they're representing both sides.
  • Amendments clause: This will explain how any changes to the agreement will be handled. This could be important if you want to switch from an hourly rate or flat fee model to one in which the seller pays your buyer's commission, for a given listing.
  • Signatures of both the buyer and the agent.

With rule change, will buyer's agents be cheaper to hire?

It's not yet clear how the rule changes will affect the market for buyer's agents, but there's definitely more flexibility to negotiate.

"In the past, agents were requesting and requiring almost 6% of the total sales price. With the new rules, we could see this drop to 3% or 4% of the total sales price," says Armstead Jones, strategic real estate advisor at real estate platform HouseCashin. That suggests a rate closer to 1.5% or 2% for buyer's agents.

What might emerge is a tiered system of service, with a "premium" all-inclusive service at the top end ranging from 2% to 3%, says Mike Hardy, managing partner of the Southwest region for Churchill Mortgage. This would be followed by more "stripped down" models for less, including an "attorney-type model" offering hourly services for drafting purchase contracts or negotiating prices. 

"I see slightly lower sales expenses across the board with these changes, just with more variation, given some fee-for-service models will surface and capture a segment of the market share," says Hardy. 

What form of payment for a buyer's agent should you choose?

This is a tricky one. If you're a "savvy" buyer comfortable finding properties on your own, you might opt for reduced service to close an offer for a property, says Jones. This could be a smaller percentage of the purchase price, a flat fee or an hourly rate.

It's worth noting that "a flat fee is typically used when the selling price is too low, and the agent needs to ensure they are compensated fairly," he says. That said, a flat fee could be used for limited, pre-selected services, compared with a full suite of services offered in a commission-based agreement.

The downside to a flat or hourly fee is that an agent might not be incentivized to go the extra mile in finding you a home the same way the would for a percentage of the home sale. These pay models might also turn out to be inadequate for your home search needs, which can be hard to estimate or predict.

As a buyer, you will need to investigate your options, compare services and negotiate effectively to ensure you're getting the best value from an agent. Whatever you choose, "there must be a clear and distinct value provided for what is being charged," says Hardy.

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