Homebuyers in the United States are now required to negotiate the commission and fees of their real estate agent before starting their home search.
Traditionally, the agents of buyers and sellers' earned commissions equal to 5% or 6% of the home price. Commissions were also paid by the seller using the sale proceeds. However, recent changes to the home purchasing process now require buyers to negotiate their agent's fees before starting their home search as well as cover the commission.
The changes are part of a $418 million court settlement agreement involving the National Association of Realtors, which was sued for allegedly artificially inflating commissions paid to buyer-side brokers.
The new changes now provide real estate agents with more avenues to get paid, including a traditional payout where the seller covers their commission, a flat fee, or an hourly rate.
Buyer-Agent Agreements
In addition to negotiating the agent's commission fees, prospective home buyers would now also be required to enter a written agreement with their real estate agent before they tour homes. The agreements will inform buyers how their agents are paid and what services the agents will provide. Furthermore, it would also inform buyers that the commission is fully negotiable but that the agent could not receive more compensation than what the buyer agreed to and signed on---even if the home seller is willing to offer more.
"The idea is if buyers are aware that they can negotiate commissions and that if they, in fact, do pay them, not the seller, it might create a more completive market and possibly a menu of services in the future that would be more comparable to other developed countries," Norm Miller, professor emeritus of real estate at the University of San Diego, said in a statement, as quoted by CNN.
While there are dozens of provisions included in a buyer-agent agreement, the contract should generally include the following, per the Consumer Federation of America:
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Terms of the agreement: It should specify how long the contract will last.
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Type of agreement: It should specify whether the buyer is entering an "exclusive" or "non-exclusive" partnership with the agent. In exclusive contracts, the buyer cannot work with another agent until the end of the contract term.
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Compensation: It should specify whether the agreed-upon fees are a percentage of the purchase price, a flat fee, or an hourly rate. It should also state who would be responsible for covering the fee--the buyer, the seller, or both.
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Scope of services: This outlines what services the agent will provide the buyer (for example, finding properties, setting up showings, or negotiating offers)
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Cancellation policy: This specifies the "no-fault termination" that would let either party walk away.
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Confidentiality clause: This states that any personal or financial information shared during the partnership remains confidential.
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Dual agency disclosure: If applicable, the agent must inform the buyer and seller that they are representing both sides in the transaction.
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Amendments clause: This specifies how changes to the agreement will be handled (for instance, switching from an hourly rate to a flat fee).
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