How new national rules will change the way central Ohioans buy and sell their home

New rules governing home buyers and sellers take effect Aug. 17.

What do buyers and sellers need to know?

To find the answer, The Dispatch spoke with four experts: Jim Deskins, owner of The HomeBuyer's Advocate in Worthington, which represents home buyers; Scott Hrabcak, president of the Columbus Realtors association and an agent with Hanna Commercial Real Estate in Westerville; Jeff Ostrowski, an analyst with the consumer financial website Bankrate.com; and Ali Whitley, president of the Ohio Realtors association and an agent with RE/MAX Crossroads in Akron.

What are the rules?

The new rules from the National Association of Realtors prohibit sellers' agents from offering to compensate buyers' agents through the Multiple Listing Service, which is the primary portal of homes for sale. The rules also require an agreement between the buyer and the buyer's agent that spells out how the agent will be compensated.

What prompted the changes?

The NAR announced the rules in March as part of a settlement in a lawsuit that accused the NAR of anti-competitive practices that elevated costs for home buyers. Traditionally, home sellers have paid commissions for both the seller's and the buyer's real-estate agents. In central Ohio, the commission is often 3% of the sales price to each. A seller, for example, would pay $18,000 in real-estate commissions — $9,000 to agents on each side — on the sale of a $300,000 home. If a buyer isn't represented by an agent, the seller's agent typically would collect the full 6% commission.

Critics argued that the system raised home prices by keeping commissions high because it prevented buyers from negotiating their own rates. They also argued that the system prevented buyers' agents from independently representing buyers because they were being paid by the seller.

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What do the rules mean for sellers?

Sellers will now be only required to pay their real-estate agent. Sellers can, however, still authorize their agent to pay the buyer's agent through a cooperative compensation agreement; they simply can't advertise that through the MLS.

What does it mean for buyers?

This is where the rules will have the biggest impact. Buyers will now be responsible for arranging a compensation agreement with their agents. Buyers have several options including: paying the agent a flat fee or fees for specific services; paying the agent a percentage of the sales price; allowing their agent to arrange to be paid by the seller; or asking the seller's agent to represent the buyer as well as the seller.

"Where does that compensation now come from?" asked Ostrowski. "Traditionally, it's been invisible to buyers because it comes out of the proceeds of the sale. Now the question is, 'Am I as the buyer going to pay that 10 grand to my agent directly? Will the seller agree to pay that out of the proceeds?' There are a lot of questions."

Should buyers continue to just let the seller pay their agent?

While buyers must now ink a deal with their agent, most experts expect sellers to continue to pay both sides through a cooperative compensation agreement.

"When the seller's broker gives a portion of the commission to the buyer’s agent, that’s been a good way for buyers and sellers to buy and sell homes for a long, long time," said Whitley.

Others say there are reasons for buyers to strike an independent deal with their agents. They note that buyers are paying for the agent whether they like it or not when the seller pays because that fee is baked into the cost of the home. Striking an independent deal also provides the buyer more control over compensation and guarantees the agent will work exclusively for the buyer without a conflict of interest.

Agents who represent buyers know the new rules will require more conversations with buyers, who may not be expecting to pay thousands of dollars for representation. Buyers cannot roll their agent's commission into a mortgage, so must now come up with the money upfront.

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"When buyers come to us, we’re going to have to show our value and find a way to indicate to a potential buyer, 'Hey this is what we do and this is why we're a needed service for a buyer. This is how we add value and how we feel we can earn our keep, so to speak," said Deskins.

Will the rule really change anything?

This is the big question. While the rule prohibits sellers' agents from advertising a shared commission on the MLS, it does not prohibit them from offering to do so outside the MLS. Experts say because of this, they expect most agents will simply strike a deal that provides the same compensation as before: the seller splitting the commission between both agents.

"In many ways, sellers and buyers won’t see a change," said Whitley.

Uncertainty remains

Experts agree on one thing: The real impact of the rules won't be known until they have been in practice for a while.

"We just don't seem to know how this will play out," said Ostrowski. "It could really change the structure or not change it."

Deskins agreed.

"After Aug. 17, what’s it going to look like?" he asked. "Frankly, we don’t know."

jweiker@dispatch.com

@JimWeiker

This article originally appeared on The Columbus Dispatch: How new national rules will change the way central Ohioans buy and sell their home