Homebuyers, real estate agents face major change starting Aug. 17

After a previous court settlement, major changes are beginning this week involving homebuyers and their real estate agents. The changes follow a federal court settlement with the National Association of Realtors.

The Aug. 17 changes could break the standard of the listing agent and buying agent splitting a 5%-6% commission on the purchase price of a home.

The Justice Department said the National Association of Realtors rules have prohibited multiple listing services from disclosing to prospective buyers the commission that agents will earn if the buyer purchases a home listed on the MLS. The Justice Department argued that this process potentially led agents to recommend their clients to purchase homes with higher commissions.

The NAR contended that agent commissions are negotiable and competitive, a claim the Justice Department has disputed in legal filings.

RELATED STORY | Mortgage rates reach 15-month low, but is now the time to buy or refinance?

But new changes now prohibit offers of compensation on multiple listing services. Secondly, agents working with a buyer now must enter into a written buyer agreement before touring a home.

Together, these changes are intended to inform a homebuyer of how much compensation is being provided to the agent for their services. While the seller often pays for the commission, many consider these fees baked into the cost of a home.

Although there are fears the new changes could lead some agents to leave the industry, the National Association of Realtors is expressing confidence agents can adapt to the changes.

"NAR members are dedicated, intelligent, and highly adaptable experts in their fields—that’s why Realtors are such an integral part of the homebuying and selling process," Kevin Sears, president of NAR, said in a statement. "These changes help to further empower consumers with clarity and choice when buying and selling a home. As the August 17 practice change implementation date approaches, I am confident in our members’ abilities to prepare for and embrace this evolution of our industry and help to guide consumers in the new landscape."

How buying agents will be compensated

There is still uncertainty about the long-term impacts of the upcoming changes. The National Association of Realtors said compensation for the buying agent can still be listed off of the MLS.

RELATED STORY | New homes are getting smaller: Here's why

The National Association of Realtors said the current system tends to benefit low- and middle-income buyers who might not be able to afford a down payment. Because the seller often covers commissions, a buyer can minimize out-of-pocket expenses at closing.

These commissions can be quite costly for sellers. A person selling a $500,000 home would expect to pay at least $25,000 toward commissions.

NAR chief legal officer Katie Johnson said the changes give options for buyers and their agents on how buying agents will be compensated, including fixed-fee commissions or a percentage of the sale.