The real estate market in Massachusetts for commissions is undergoing significant changes that directly impact both home buyers and sellers.

A settlement resulting from a federal lawsuit has transformed the real estate industry and fundamentally changed the management of commissions in property transactions.

The National Association of Realtors (NAR) has consented to substantial modifications affecting buyers, sellers, and agents, establishing a new environment where transparency, negotiation, and buyer representation are prioritized.

New commission rules now apply.

For decades, sellers have been responsible for paying both their agent’s and the buyer’s agent’s commissions. These fees are typically 5-6% of the home sale price. However, as of August 2024, a significant shift in commission rules is reshaping the landscape.

Now, sellers are no longer obligated to pay the buyer’s agent commission, placing this responsibility on the buyers themselves. This change is prompting buyers to reassess their budgets and rethink their strategies.

Meanwhile, the new rules also restrict the display of agent compensation details on the Multiple Listing Service (MLS), emphasizing private negotiation between clients and agents.

Whether you are considering buying or selling, I will educate you on the following topics:

• How these new rules change the responsibilities of buyers and sellers.
• Why MLS listings no longer display agent compensation, making private negotiations essential.
• How formal agreements between buyers and agents prevent unexpected fees.

Let’s explore what these changes mean for you in today’s market.

Real Estate Commission Rules Changes Explained.

The Traditional Real Estate Commission Model: A Quick Overview

For years, real estate commissions followed a standard model. When selling a home, the seller pays a commission to their real estate agent, which the agent splits with the buyer’s agent.

This commission usually totaled 5-6% of the home’s sale price, covering both agents’ compensation. The model incentivized buyer agents to show properties to clients, knowing they would receive payment.

However, this model had drawbacks. Sellers bore the cost of these commissions, which reduced their net proceeds. Meanwhile, buyers did not have to consider agent fees, allowing them to focus solely on the purchase price.

The system also lacked transparency about how much buyer agents earned and who ultimately paid.

The New Massachusetts Commission Rule: What Has Changed?

As of August 2024, sellers are no longer required to pay the buyer’s agent commission. This responsibility now belongs to the buyer. This change promotes transparency and fairness in real estate transactions, clarifying who pays for what services.

Now, buyers must adjust their budgets to cover these expenses. They need to plan for agent fees in addition to the down payment, closing costs, and other expenses. This will mean rethinking their overall purchasing strategy and negotiating agent compensation more carefully for some.

This will happen when sellers don’t offer buyer agent compensation. A buyer will include the buyer agent’s compensation in the offer.

MLS Listings No Longer Show Agent Compensation

The new rules also change how agent compensation appears on the Multiple Listing Service (MLS). Offers of compensation for buyer agents can no longer be displayed.

Before, these offers were visible, encouraging agents to show specific properties to clients. Now, agents and clients must negotiate compensation privately.

The change was made to prevent situations in which real estate agents intentionally avoided showing properties that did not offer a desirable commission.

While this was not a widespread issue, there are always some bad apples in every industry.

This shift creates a more competitive and transparent environment. Compensation depends on direct agreements rather than preset incentives. It also removes the assumption that sellers will pay the buyer’s agent fees, prompting more tailored negotiations.

Sellers’ New Strategies: Offering Private Compensation

While sellers are no longer required to pay the buyer’s agent commission, many may still offer compensation privately. This strategy can help attract buyer agents and keep a property competitive.

Sellers may pay part or all of the buyer agent’s fee or offer other incentives to encourage showings. All compensation agreements need to be clear before any transactions begin.

In the standard Massachusetts listing contract, a seller must check a box to indicate whether they offer a buyer’s agent compensation. In that case, the listing agent will disclose the commission provided to the buyer’s agent.

A seller can also choose not to offer compensation formally but to agree to a fee requested in a buyer’s offer on their property.

Clear Terms and Formal Agreements: The New Standard

New Real Estate Commission Rules For Buyers and Sellers

Transparency is now more critical than ever. Before any transaction starts, all terms of agent compensation must be clear. This change emphasizes open communication between buyers, sellers, and agents to ensure everyone knows their financial obligations.

Buyers must also sign formal agreements with their agents before touring homes. This step ensures both parties understand the compensation structure upfront, avoiding unexpected fees.

These agreements typically include details like the buyer agent’s fees, rebates, or credits and how to cover these costs.

Previously, potential buyers could look at homes without a formal agreement with an agent. Under the new rules, a real estate agent cannot show a property without a written buyer agency contract outlining the agent’s pay.

Buyers May Have to Adjust Their Budgets

With buyers now potentially responsible for agent fees, they must carefully plan their budgets. They may need to set aside money for agent fees and other costs. Some may negotiate with agents for flexible fee structures or seller concessions to reduce expenses.

Buyers must also negotiate strategically, balancing the purchase price with the need to compensate their agents fairly. The new rules encourage active discussions about agent fees to ensure buyers get value for their money.

While negotiating commissions was typical when selling a for sale by owner home, this was not the case with a traditional sale.

What This Means for the Real Estate Market

These changes mark a departure from traditional real estate practices. Sellers can now reduce upfront costs and negotiate buyer agent compensation privately. However, they may need to adjust their strategies to remain competitive.

Buyers must budget carefully and plan for agent fees. Focusing on transparency and formal agreements creates a fairer process, ensuring all parties understand the costs.

What’s Happening Elsewhere With Commissions?

Realtor Vicki Moore from Pacifica Locals shared her experience so far. She told me not much has changed in her California market. A significant amount of buyers have not paid a buyer’s agent directly.

I take a deep breath every time the conversation gets to commission. I can feel my eyes rolling up to the top of my head. We can’t even say “commission” anymore. It’s now called “compensation.” Even Realtors are wordsmithing now.

The media told home sellers they don’t have to pay buyer agent compensation. They didn’t explain the complicated terms of the DOJ-NAR settlement, and the news spoke in soundbites.

Some sellers arrive at their final answer before I get there: “We’re not paying it. Why should we?” They don’t want to know why they should, but it does allow me to explain.

The argument that the buyer already pays the compensation gets a deer-in-the-headlights reaction. Yes, the buyer pays. How? They pay for the house. The sale of the home includes the compensation. It doesn’t matter. “We’re not paying.” Explaining the pros and cons of compensation becomes a tug-of-war.

Whether or not the seller pays is a strategy. It depends on many things. One of the most important considerations is whether your buyers can afford to pay their agent. If they can’t, the strategy has a problem.

Common sense tells you that a buyer who doesn’t want to or doesn’t have the funds will still ask the seller to pay in their offer.

Conclusion

The new commission rules promote transparency and fairness in real estate transactions. Sellers no longer need to pay buyer agents’ fees, while buyers must budget for their agent’s fees and negotiate terms directly.

Formal agreements help prevent unexpected costs and misunderstandings. While some agents will find the rule changes challenging, most will see it as business as usual. Being a Realtor for the past thirty-eight years, I don’t see these changes as a big deal.

Buyers and sellers must adapt and understand these new financial dynamics to succeed in this evolving Massachusetts market.

For more strategies on navigating these changes, consider learning about the best negotiation tactics for real estate or choosing the right agent for your needs.

Please contact me if you have questions or are in the Metrowest, Massachusetts, area and need help selling your home.