New realtor compensation rules open door to more negotiations and concerns

A new set of rules are changing the ways people buy and sell homes across the nation, including in the State of Colorado. Following a settlement of a class action lawsuit, the National Association of Realtors agreed to change rules when it comes to how realtors are compensated for their work for buyers and sellers.

"Since the mid-1980s it has been the standard way of doing things that the seller will pay the buyer's agent's commission," said Jon Holsten, a longtime realtor in northern Colorado.

In most cases, the seller of a property was the one who paid between 5% and 6% for agent fees. That typically covered the agent fees for both the buyer and seller, with both agents typically splitting the amount.

While the seller covering around 6% has become the standard expectation for years, Holsten said that practice was never set in stone.

"It has always been negotiable," Holsten told CBS News Colorado's Dillon Thomas.

Now, under the new realtor compensation rules, prospective buyers are required to sign a compensation contract with their agent before touring a home they are interested in. And, the seller is now required to negotiate with their agent how much they are willing to compensate them for their work, without having to agree to compensate the buyer's agent, as previously expected.

"This leaves a lot of room for negotiating between the buyer and seller," Holsten said.

Seller Adrian Ruiz recently navigated the new set of rules alongside Holsten, his agent.

Prior to the new set of rules, Ruiz was expecting to cover the buyer's agent fees. However, under the new guidelines, he sat down with Holsten and drafted up an agreement of the percent of the fees he was willing to compensate his agent for, instead of just assuming the prior-standard of 6%.

"We can negotiate a rate that is fair to you, as a realtor. And, something that is fair to me, at the same time, that would allow me to sell my house," Ruiz said.

For Ruiz, it worked. He was able to get his property under contract while also saving money on how much he would've had to originally pay under the previous expectations.

However, Holsten said there are some people who will not benefit from these new rules.

"On one hand the seller looks at that and says, 'This is great, i only have my fee to pay.' Which is true," Holsten said. "The problem is, if they are trying to attract buyers who cannot afford their own representation, that person may never come and look at their home."

Holsten cautioned sellers to consider how these new rules will impact first-time or young buyers who may not have extra cash on hand. Prior, many young or first-time buyers were already having a difficult time having enough money to cover a down payment, move, and more. Now, those same people also have to be prepared to cover thousands of dollars extra in fees for their agents.

Holsten said that could also limit the number of prospective buyers sellers are able to attract. He said some agents and buyers may be less likely to tour a home unless they know in advance whether or not the seller is willing to help cover any fees.

That is why Holsten said he is encouraging sellers to consider offering to cover at least a portion of buyer agent commissions, assuring more prospective buyers will be willing to visit their property.

Holsten said sellers should expect buyers to ask for assistance in covering agent fees, especially given that homes are currently not selling as rapidly as they were in recent years.

Holsten, like many others, said they aren't sure exactly how the new set of rules will play out in the coming months and years. However, he speculated a new standard expectation will likely form.

"It opened up the door for more negotiations. Whether or not that is good or not, that is something we are going to have to wait to see," Ruiz said.

Holsten also noted that the new rules can make looking for a new home more intimidating for prospective buyers who do not have previously-established relationships with a realtor.

He said, as an agent himself, he prefers to take prospective clients on tours as a way for them to get to know not only the house and market, but also as a way to get to know him. By doing so, that allows the clients to know whether or not they mesh well with their agent before going into a major purchase.

Now, under the new rules, buyers are required to negotiate and sign a commission agreement with an agent before they even tour a home.