How the New Commission Rules Impact Your Real Estate Business
On March 15, 2024, the National Association of Realtors (NAR) agreed to change the rules for how more than 1 million real estate agents are paid in America. The new rules go into effect in mid-July 2024. CLICK HERE to view NAR's FAQ page. This means many real estate firms will change their compensation agreements throughout the spring/summer homebuying season. The main impact this has on agents in the near term is that sellers will no longer be allowed to offer compensation to the buyer's agents through the MLS. However, sellers can still offer "seller concessions" through the MLS and compensation to a buyer's agent outside the MLS.
WHAT'S A "SELLER CONCESSION"?
A seller concession in the context of the new real estate rules is essentially an agreement by the seller to pay some of the buyer's total closing costs, including real estate fees and commissions. Lending guidelines generally allow home sellers to pay 3% - 6% of the home's value toward the buyer's closing costs, depending on the loan program. For example, suppose the property purchase price and appraised value is $500,000. In that case, the lender will allow the seller to contribute somewhere between $15,000 (3% of the value) and $30,000 (6% of the value) toward the buyer's total closing costs, depending on the loan program. These funds can be used to pay any closing cost listed on the closing disclosure, including fees to the buyer's real estate agent.
SHOULD BUYER'S AGENT FEES BE INCLUDED OR SEPARATED FROM SELLER CONCESSIONS?
Buyer agent fees can still be paid by sellers if the fees are structured as seller concessions in your purchase agreements and/or if the fees are offered outside the MLS. For example, the Federal Housing Administration (FHA) recently issued guidance saying that buyer's agent fees paid by the seller will not be counted as interested party contributions when FHA-insured financing is involved. This means that for deals involving FHA financing, it's better to structure the purchase agreement in such a way that the seller-paid fees to the buyer's agent are NOT included with seller concessions. This may or may not be the case for conventional financing as Fannie Mae and Freddie Mac have not yet issued guidance on this topic. I'll keep you updated as things develop.
WHAT'S THE NEXT STEP?
Contact me to schedule a business planning session to evaluate how the new commission rules may impact your business. It's more important than ever to partner with a qualified mortgage professional. I can help ensure the seller concessions in your purchase or sale agreements are structured properly to comply with lender guidelines.
SELLER CONCESSION: An agreement by the seller to pay some of the buyer's total upfront closing costs.
Source: Momentifi