In October of 2023 a court determined that the National Association of Realtors (NAR) and four real estate companies (Re/Max, Keller Williams, Anywhere and Home Services of America) had conspired to inflate real estate commissions. The four defendants eventually settled out of court. However, this case changed the way in which realtors could charge their commissions effective August 2024. This has empowered clients.
Real estate commissions are generally between 4% and 5% of the cost of the home. The commissions were supposedly negotiable, but that usually wasn’t the case. Before this case, the seller of a property would pay both the buyer’s real estate commission and their own. Typically, the cost of those two commissions was rolled into the closing costs for the seller. Realtor commissions were rarely reduced.
It’s helpful to know what a Realtor does to assist the buyer or seller. In the case of the buyer, a Realtor will find properties, go on tours of homes, answer questions and negotiate the Offer to Purchase. For the seller, a Realtor will complete a comparative market analysis of similar homes in the area, provide photo shoots of your home, sometimes offer suggestions for improvements or staging, list the home on MLS (multiple listing service), do individual showings and open houses, put up signage, stage the home and review and negotiate offers.
In August of 2024 the new rules went into effect. Now the seller pays their own commission, and the buyer can negotiate their commission. As of now, the buyers cannot roll the commission payment into the mortgage payment allowing them to pay it over time. There is a push to change this rule, but for now, the payment is made outside of closing. This can be especially challenging for first time buyers. They already have to come up with the down payment and closing costs for the purchase. Now they also have to have the real estate commission on hand to be paid outside of closing.
There are a few things you can do to avoid real estate commissions:
- You can list your house as For Sale by Owner (FSBO) this way there are no fees. However, It is a lot of work and very time consuming to sell your own home between staging, showings and negotiating offers and your lack of knowledge in the field may compromise your financial gain
- You can opt to work with a low commission realtor or a realtor who charges a flat fee. Because they are making less, you tend to get less personalized attention.
- You could sell to a company for cash. These companies close quickly and don’t charge an agent’s fee, but they also offer less for your home. Some of these companies do charge a service fee which can be equivalent to a real estate commission.
Whether you are a Buyer or Seller of Real Estate it is best to be represented by an attorney. If you find yourself in this situation and uncertain as to what to do, call John Tramontozzi, Esq. at Tramontozzi Law Offices (781) 665-0099 for a free consultation. John is an experienced Real Estate Broker and as an Attorney he has represented both Buyers and Sellers in Real Estate Transactions. He will be happy to review your needs and advise you as to the best way to move forward.