When selling a home who pays the realtor?

Revolutionary Changes to Who Pays Realtor Commission in 2024

The question of who pays realtor commission underwent a seismic shift in July 2024, marking the end of a decades-old tradition that placed the entire commission burden on home sellers. This transformation stems from a groundbreaking class-action lawsuit against the National Association of Realtors (NAR) that resulted in an unprecedented $1.8 billion settlement, fundamentally restructuring how realtor commission payments work across the United States.

For generations, sellers bore the responsibility of paying both their listing agent and the buyer's agent, typically totaling 5-6% of the home's sale price. This system inadvertently inflated home prices, as sellers built commission costs into their asking prices. The new rules now require buyers to directly compensate their own agents, creating a more transparent and potentially cost-effective marketplace for both parties.

These changes represent the most significant disruption to real estate commission structures since the modern MLS system was established, affecting millions of transactions and fundamentally altering the relationship between buyers, sellers, and their respective agents.

Understanding the Traditional Commission System

To fully grasp the significance of current changes, it's crucial to understand how realtor commission payments traditionally functioned. The Multiple Listing Service (MLS) system served as the backbone of real estate transactions, creating a cooperative environment where listing agents would offer a portion of their commission to buyer's agents as an incentive to show properties to potential purchasers.

How the MLS Cooperation System Worked

When sellers listed their homes, they would agree to pay a total commission, typically ranging from 5% to 6% of the final sale price. The listing agent would then specify in the MLS how much of this commission would be offered to the buyer's agent, usually creating an even split. On a $500,000 home sale with a 6% total commission rate, this meant $30,000 in total fees, with $15,000 going to each agent.

This system created several market distortions that critics argued were detrimental to consumers. Since buyers weren't directly paying their agents, they had little incentive to negotiate commission rates or question the value of services provided. Meanwhile, sellers were forced to build these costs into their asking prices, effectively making buyers pay for both agent services indirectly through higher home prices.

The Unintended Consequences

The traditional system where sellers paid all realtor commission created several problematic dynamics. Buyer's agents had guaranteed compensation regardless of their client's satisfaction or the complexity of the transaction. This removed competitive pressure that might have driven innovation or cost reduction in buyer representation services.

Additionally, the system created barriers for buyers working with discount or flat-fee buyer's agents, as many listing agents were reluctant to show properties to buyers represented by agents offering lower commission splits. This effectively limited consumer choice and maintained artificially high commission rates across the industry.

The NAR Lawsuit That Changed Everything

The class-action lawsuit against the National Association of Realtors and several major brokerage firms fundamentally challenged the entrenched commission system. The Sitzer-Burnett case verdict found that NAR's rules and the MLS system created an environment where realtor commission rates were artificially inflated through coordinated industry practices.

Key Allegations and Findings

The lawsuit centered on claims that NAR's MLS rules effectively required sellers to offer buyer agent commissions, eliminating price competition in buyer representation services. The Missouri jury found that these practices constituted an illegal conspiracy to keep commission rates high, ultimately costing American homeowners billions of dollars in excessive fees.

The $1.8 billion verdict sent shockwaves through the real estate industry, forcing NAR to agree to significant changes in how commission payments are structured and disclosed. CNN Business reports that this settlement affects every real estate transaction in the United States, making it one of the most impactful legal decisions in the industry's modern history.

Settlement Terms and Implementation

As part of the settlement agreement, NAR committed to eliminating rules that required listing agents to make blanket offers of buyer agent compensation through the MLS system. The organization also agreed to implement new requirements for buyer representation agreements, ensuring that buyers understand and consent to their agent's compensation structure before beginning property searches. The Washington Post estimates that these changes could save consumers $30 billion annually in real estate commissions.

New Rules: How Realtor Commission Payments Work Now

The implementation of new commission rules in July 2024 has fundamentally altered who pays realtor commission and how these payments are structured. Understanding these changes is crucial for both buyers and sellers navigating the current real estate market.

Buyer Responsibility for Agent Compensation

Under the new system, buyers who choose to work with real estate agents must enter into written buyer representation agreements that clearly specify compensation terms before beginning their property search. This represents a dramatic shift from the traditional model where buyer agent compensation was automatically included in the seller's total commission payment.

Buyers now have several options for compensating their agents:

• Percentage-based fees: Traditional percentage of purchase price, but now negotiated directly with the buyer
• Flat fee arrangements: Fixed compensation regardless of home price
• Hourly consulting rates: Payment for specific services or time invested
• Hybrid models: Combination of upfront fees and performance-based compensation

Impact on Listing Agent Commissions

With sellers no longer automatically paying buyer agent commissions, listing agents are finding their commission negotiations have become more focused and potentially more competitive. Sellers are questioning traditional commission rates and exploring alternative fee structures, including:

• Reduced percentage rates (2-4% instead of 5-6%)
• Flat fee listing services
• Performance-based commission tiers
• A la carte service pricing

This shift has created opportunities for discount brokerages and innovative service models to gain market share, as sellers become more cost-conscious about their agent selection and compensation decisions.

Written Agreement Requirements

One of the most significant changes is the requirement for written buyer representation agreements before agents can show properties to prospective purchasers. These agreements must clearly outline:

1. The scope of services the agent will provide
2. The duration of the representation relationship
3. Specific compensation terms and payment methods
4. Circumstances under which the agreement can be terminated
5. Any exclusive or non-exclusive representation provisions

This requirement ensures transparency and gives buyers the opportunity to understand and negotiate their agent's compensation before committing to a working relationship.

Comprehensive Market Impact Analysis

The transformation in who pays realtor commission is creating ripple effects throughout the real estate market, affecting everything from home prices to agent business models. Early data and industry analysis suggest several significant trends emerging from these changes.

Effects on Home Pricing and Affordability

One of the most anticipated impacts of the new commission structure is its effect on home prices. With sellers no longer automatically building buyer agent commissions into their asking prices, some properties are being listed at lower initial prices. However, the actual impact on affordability is complex and varies by market conditions.

In markets where buyer agent compensation was traditionally 2.5-3% of the purchase price, removing this from the seller's responsibility could theoretically reduce listing prices by that same amount. However, market dynamics, supply and demand factors, and buyer behavior are all influencing how these theoretical savings translate to actual price changes.

Changes in Agent Business Models

Real estate agents are rapidly adapting their business models to remain competitive under the new commission structure. Buyer's agents, in particular, are developing new service offerings and pricing strategies to justify their compensation and attract clients who must now pay directly for representation services.

Some agents are moving toward more transparent, menu-style pricing where buyers can select specific services rather than paying for comprehensive representation. Others are offering guarantees or performance-based compensation arrangements to differentiate themselves in an increasingly competitive market.

Technology and Self-Service Trends

The requirement for buyers to pay their own agents directly has accelerated the adoption of real estate technology platforms and self-service tools. Some buyers are choosing to handle initial property searches independently using platforms like Zillow or Realtor.com, only engaging professional representation for negotiation and closing processes. According to NAR's official settlement announcement, these changes went into effect in mid-July 2024 and affect over one million NAR members nationwide.

This trend has created opportunities for hybrid service models where buyers can access professional guidance for specific aspects of their transaction while handling other elements independently, potentially reducing their overall representation costs.

Strategic Approaches for Buyers and Sellers

Understanding who pays realtor commission under the new rules is only the beginning. Both buyers and sellers need strategic approaches to navigate this transformed marketplace effectively and achieve the best possible outcomes in their real estate transactions.

Smart Strategies for Home Buyers

Buyers now have unprecedented control over their representation costs, but this responsibility requires careful planning and decision-making. The most successful buyers under the new system are those who approach agent selection and compensation strategically.

Evaluating Agent Value Propositions

With direct payment responsibility, buyers should thoroughly evaluate what services different agents provide and how their compensation aligns with the value received. Key factors to consider include:

• Market knowledge and expertise in specific neighborhoods or property types
• Negotiation track record and average savings achieved for clients
• Access to off-market listings and industry connections
• Technology tools and resources provided to streamline the process
• Availability and communication style throughout the transaction

Negotiating Buyer Agent Compensation

The new system makes buyer agent compensation fully negotiable, creating opportunities for significant cost savings. Successful negotiations often involve:

1. Understanding market rates: Research typical buyer agent commissions in your area to establish baseline expectations
2. Exploring alternative structures: Consider flat fees, hourly rates, or performance-based compensation
3. Linking payment to services: Ensure compensation aligns with the specific services you need
4. Including termination clauses: Maintain flexibility to change representation if service quality is unsatisfactory

Effective Strategies for Home Sellers

Sellers benefit from reduced commission obligations but must develop new strategies to attract buyers who may be less represented or working with agents requiring direct compensation. The most successful sellers are adapting their marketing and negotiation approaches accordingly.

Pricing Strategy Adjustments

With the elimination of automatic buyer agent commission obligations, sellers can potentially list their properties at more competitive prices while maintaining their net proceeds. However, pricing strategy must account for market conditions and buyer behavior patterns.

Consider these pricing approaches:

• Market-based pricing: Focus on comparable sales without buyer agent commission assumptions
• Buyer incentive pricing: Price aggressively but offer buyer agent commission assistance as a negotiation point
• Flexible pricing: List at multiple price points depending on whether buyers have agent representation

Marketing to Unrepresented Buyers

With some buyers choosing to navigate transactions without professional representation, sellers must enhance their direct marketing efforts and prepare for negotiations with unrepresented parties. This may include:

• Enhanced online property presentations with detailed disclosures
• Clear communication about property condition and transaction processes
• Flexibility in showing schedules and direct buyer communications
• Preparation for more complex negotiations and documentation requirements

Future Outlook: Long-term Market Evolution

The changes to who pays realtor commission represent just the beginning of a broader transformation in real estate industry practices. Understanding emerging trends and preparing for continued evolution will be crucial for all market participants.

Emerging Industry Models

The new commission structure is catalyzing innovation in real estate service delivery, with several emerging models gaining traction:

Unbundled Services

Both buyer and seller agents are increasingly offering à la carte services, allowing clients to purchase only the specific assistance they need. This might include:

• Property search and showing services only
• Contract negotiation and closing support
• Market analysis and pricing consultation
• Document preparation and transaction management

Technology-Enhanced Representation

Real estate professionals are leveraging technology to provide more efficient services at competitive prices, including AI-powered market analysis, virtual showing platforms, and automated transaction management systems.

Regulatory and Industry Response

The real estate industry continues to adapt to regulatory changes and market pressures. State real estate commissions are updating their regulations to align with the new federal requirements, while industry organizations are developing new standards and practices.

Key areas of ongoing development include:

• Standardized disclosure requirements: Ensuring consumers understand commission structures and their obligations
• Agent education programs: Training professionals to operate effectively under new compensation models
• Consumer protection measures: Preventing predatory practices or inadequate representation
• Technology integration standards: Facilitating smooth transactions across different service models

Long-term Market Predictions

Industry experts and economic analysts are making several predictions about how the real estate market will evolve over the next 5-10 years in response to commission structure changes:

The most successful real estate professionals will be those who adapt quickly to changing consumer expectations and leverage technology to provide superior value at competitive prices. For consumers, the new commission structure offers opportunities for cost savings and more tailored service, but requires greater diligence in agent selection and contract negotiation.

Preparing for Continued Change

The transformation of realtor commission payment structures is part of a broader trend toward increased transparency and consumer choice in professional service industries. Market participants should prepare for continued evolution by:

• Staying informed about regulatory developments and industry best practices
• Developing flexible approaches to service delivery and compensation
• Investing in technology and education to maintain competitive advantages
• Building strong relationships based on demonstrated value and client satisfaction

The question of who pays realtor commission has been definitively answered by the 2024 regulatory changes, but the broader implications of this transformation will continue to unfold for years to come. Both buyers and sellers who understand these changes and adapt their strategies accordingly will be best positioned to succeed in the evolving real estate marketplace.

Disclaimer: Real estate commission structures and regulations may vary by state and locality. This article provides general information based on federal settlement requirements and industry trends. Consult with licensed real estate professionals and legal advisors for specific guidance related to your transaction and location.