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Major Real Estate Development Could Slash the Cost of Buying or Selling a Home

A major change is coming to the real estate industry. On Friday, the National Association of Realtors agreed to eliminate rules on commissions in order to settle pending lawsuits. If approved by a federal court, the settlement is likely to have a significant effect on how the real estate industry does business.  If you are planning to buy or sell a home in 2024, this settlement may have a big impact on how much you pay for real estate commissions.

Part of the settlement includes eliminating rules on realtor commissions which typically comes out to 6% of the sale price of the home.  How things work now is that home sellers sign a listing agreement with a realtor (the “listing agent”) that pays a commission of 5-6% of the final sales price for the home.  The listing agent’s commission is split 50/50 with the agent who works with the buyers, however, the full commission is paid from the seller’s proceeds while buyers pay nothing to either agent. Under the settlement, home sellers will no longer be compelled to pay commissions to both the listing agent and the buyer’s agent when selling their home. Instead, sellers and buyers will be free to negotiate commission paid to their respective agents.


What does this mean if you’re a seller or buyer?


It’s difficult to predict the practical impact of this settlement on Pennsylvania home buyers and sellers.  Eighteen states in the country already have separate seller and buyer agency agreements that explains compensation and how that’s negotiable.  The practices in those states may serve as a guide for the likely fallout of the settlement in Pennsylvania.  Here are some possibilities:


For Sellers:


  • Switching to a model where buyers and sellers pay for their own agents could save sellers $30 billion a year, a study by two Richmond Fed economists estimated.

  • If Sellers pay only the listing agent, they’ll drop from paying a 6% to a 3% commission, which amounts to $12,000 on a median-priced $400,000 home.

  • Some believe sellers will accept a reduced price for their homes because they are paying a reduced commission.  Others do not see this happening and expect sellers’ desire to maximize returns for home sales to remain unabated. 

  • Home sellers may negotiate more aggressively on commission agreements.  They may want one commission structure paid when selling to buyers without a buyer agent and a different commission paid when buyers have buyer agents, potentially bringing costs down. There may be additional negotiations with buyers concerning how much of the buyer agent’s commission will be paid by the respective parties. 


For Buyers:


  • Buyers will face the stark possibility that buying a home might’ve just gotten more expensive for them.  If they are forced to pay a portion of the commissions currently paid by sellers, Buyers might need to come up with an additional. $12,000 on a median-priced $400,000 home.  Buyers should ask what services they are receiving for such a hefty fee.

  • The biggest thing they’ll see is that they’ll be required to enter into some sort of a buyer’s representation agreement with the realtor they’re working with directly.

  • Buyers will face uncertainly whether they’ll be the ones who are required to pay their agent’s commissions or if some or all those fees will be negotiated to be paid by the seller in an agreement.  Certainly buyers should negotiate conditions in buyer agent agreements to relieve them of the obligation to pay commissions when the seller is paying some or all of them. 

  • The possible changes could impact first-time home buyers, who could have to pay more for an agent because the commission would no longer come just from the seller.  For these buyers, it’s a struggle already to come up with the down payment and money to cover closing costs.  If they have to come up with an agent commission as well, it becomes very difficult for first-time home buyers to enter the market with representation.

  • More first-time home buyers may choose to work without an agent to avoid having to come up with even more money to pay the agent’s commission.

  • Buyers may negotiate commissions with their agents, overall reducing commissions paid to realtors in sales transactions.

  • Buyers with VA or FHA loans may be adversely impacted because those loans already include restrictions on the value of concessions sellers can give in any deal.  It’s unknown whether the VA or FHA loan programs will change those seller concession limits to accommodate negotiations concerning buyer-agent commissions.


More to Come

The settlement hasn’t been approved by the court. Of course, the devil will be in the details, and there are several questions about how the changes will impact Pennsylvania home buyers and sellers. However, the prevailing thought among those in the industry is that real estate commissions will be reduced overall by additional negotiations, ultimately benefiting consumers. These changes are expected to go into effect in mid-July 2024.  We’ll stay on top of this issue and bring you the latest news.    


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