Buying, Selling A House In CA? The Rules Are Changing: What To Know (2024)

Real Estate

The National Association of Realtors is changing agents' commission rules, which alters the playing field for home buyers and sellers.

Posted Mon, Mar 18, 2024 at 4:03 pm PT|Updated Wed, Mar 20, 2024 at 11:41 am PT

The National Association of Realtors reached a settlement agreement on Friday that changes the commission rules. The settlement, which still must receive court approval, is seen as a "landmark case" in the nation's real estate market, but what will it mean in California?

The NAR commission rule is at the heart of the settlement agreement in California and across the nation. Under existing language, a seller's agent must disclose the commission cut for the buyer’s agent when listing homes on NAR-affiliated multiple listing services (MLS).

For example, on public interfaces like Zillow or Realtor.com, when consumers browse homes for sale they will see a "buyer's agent fee" — usually 2.5-3%.

In California, the seller typically pays both sides of the commission. So if a house sells for $1 million, and a 6% commission is split between a listing agent and a buyer's agent, the seller loses $60,000 off the top. The buyer still pays $1 million.

The lawsuit against NAR claimed the commission rule pushed up real estate prices and caused some buyer's agents to steer their clients to homes with the highest fees.

Brandi Summers, a professor at the University of California, Berkeley, told NBC San Diego that the existing commission structure is blamed for agents pushing buyers into higher-priced homes.

The settlement agreement "is historic," she said.

Under the new rule that takes effect in July, buyer's agents will no longer see fees on any MLS listing, which means they can't easily steer their clients to properties that offer lucrative commissions. Commission fees must be negotiated outside of the MLS. The fees, the split, and who pays what can all be negotiated, as they can be today. The difference is nothing can be predetermined in the MLS.

This is new for buyers. Agents will be required to enter into written agreements with buyers before touring homes.

"These agreements can help consumers understand exactly what services and value will be provided, and for how much," according to NAR.

It's unclear whether buyers will be able to finance their agents' commissions as is typically done today.

"That's exactly the question," University of San Diego Professor Emeritus Norm Miller told CBS 8 San Diego. "That remains to be seen right now."

The buyer's agent can be paid directly by the purchaser, by the seller, or via a portion of the listing broker's commission, according to NAR.

Using the MLS to communicate offers of compensation will not be an option, but commission rates will "continue to be negotiable," NAR said.

Robert A. Braun, a partner with Cohen Milstein Sellers & Toll, told the Los Angeles Times that the new commission structure should increase competition in the home-buying/selling process.

“You got a free market,” he said.

What will the new rule do to home prices in California? It's an unknown, though some think it could bring prices down without hurting sellers.

“Going forward, there is a significant likelihood home prices will be lower than they otherwise would be,” Braun told the Los Angeles Times. He reasoned that if buyers paid their own agent, more homeowners could afford to sell, increasing supply and thereby pushing prices down.

"We should see homes sell more often if the fees are lower," Miller told CBS 8.

According to the California Association of Realtors, the median sales price of a Golden State home in January was $788,940.

Correction:

This story has been updated to reflect that Professor Emeritus Norm Miller serves at the University of San Diego, not California State University San Diego.