Home sale commissions are getting a shake-up this weekend

Changes to realtor commissions taking effect this weekend could give home sellers a lot more negotiating power — and for buyers, potentially some more paperwork.

Starting Saturday, realtors will be barred from offering compensation on multiple listing services (MLS), making it harder for buyers’ agents and sellers’ agents to negotiate fees on their own, as they’ve done for decades.

Until now, home sellers traditionally had to pay commissions, commonly in the range of 5% to 6%, to their agents, who then split that fee with the buyer’s agent upon making a sale. The new rules, which follow a historic $418 million settlement with the National Association of Realtors in March, leave more room for sellers to negotiate those fees down and make it more appealing for buyers to forgo agents entirely.

“It’s the biggest change probably in the history of real estate,” said Mike McCann, a realtor in Philadelphia. “It has created a lot of fear, a lot of anxiety” within the industry, he said.

With the MLS no longer serving as a forum for negotiation, it remains to be seen how agents, buyers and sellers will choose to cover commission costs. While sellers could pass on any savings on the commission to the buyer in the form of a lower home price, it’s also possible that sellers could increasingly choose to ask the buyer to cover some or even all of the costs.

To ensure buyers know the compensation that they may be on the hook for, the NAR is implementing a change, also effective Saturday, requiring agents to enter into written agreements with buyers before showing a home.

Jan Jaeger is a client of McCann’s and says the new rules add more work to the experience of homebuying, which she’s going through now in Philadelphia after selling her house there earlier this month.

“It’s just another step in already a very difficult process, and I only say that because I have bought and sold many homes in the past, and what’s happening today is very different. It used to be fairly simple,” Jaeger said.

The settlement that triggered the shake-up stemmed from a class-action antitrust lawsuit that alleged brokers were steering clients to listings on the MLS offering better commissions. The NAR denied wrongdoing and reaffirmed its “commitment to requiring that MLS Participants must not limit the listings their client sees because of broker compensation.”

The NAR has also clarified that even though offers of compensation are prohibited on the MLS, offers “could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals.”

The changes come in the midst of a cooling housing market, where high home prices and high mortgage rates have caused sales of existing homes to slide since the pandemic-era homebuying frenzy.

For first-time homebuyers already concerned about affordability, the possibility of being on the hook for commissions adds more potential costs.

“People are saving, they’re paying rent, they don’t have the money,” McCann said of younger buyers looking for their first homes. “How are they going to pay the commission? That’s my biggest concern.”

Still, experts say the big takeaway is that fees could decline further. Real estate listing site Redfin noted in a report earlier this month that commissions for buyers’ agents have already been on a yearslong decline.

“It’s also possible that news of the settlement made consumers more aware they can offer any commission to a buyer’s agent or none at all, contributing to the decline since March,” the report said.

In the end, the new changes should at least give homebuyers and sellers more transparency into how they compensate brokers.