Summary

With the new National Association of REALTORS® (NAR) regulations coming into effect in August 2024, it's crucial to understand how these changes will affect real estate agent commissions. In this article, we explore in detail how commissions are divided, who is responsible for paying them, and why the support of a professional agent remains invaluable.

How Are Commissions Divided Among Agents?

Traditionally, the commission in residential purchase/sale transactions has been 6% of the property’s sale value. This percentage is equally divided between the buyer’s agent and the seller’s agent, with each receiving 3%. In rental transactions, the standard commission is 10% of the annual contract value or one month’s rent, also divided between the involved agents.

Example of Commission Division:

Property Sale:

  • Sale price: $300,000
  • Total commission: 6% ($18,000)
  • Buyer’s agent commission: 3% ($9,000)
  • Seller’s agent commission: 3% ($9,000)

Property Rental:

  • Annual contract value: $24,000
  • Total commission: 10% ($2,400)
  • Tenant’s agent commission: 5% ($1,200)
  • Landlord’s agent commission: 5% ($1,200)

Who Pays the Commissions?

The property owner is always responsible for paying the commission, both in the case of a sale and a rental. This transaction is carried out on the closing day, and the attorney is responsible for distributing the money to each of the involved parties.

Impact of the New NAR Regulations

The new NAR regulations, effective in August 2024, aim to increase transparency in real estate transactions. These regulations include:

  • Mandatory Commission Disclosure: Agents must disclose the commissions they will receive, both to the buyer and the seller, before signing any agreement.
  • Prohibition of Hidden Commission Offers: All commissions must be published in the multiple listing system (MLS) and cannot be negotiated in secret.
  • Greater Transparency in Contracts: Sales and rental contracts must include a detailed section on how commissions will be divided among agents.

These measures are designed to protect consumers and ensure they fully understand the costs associated with buying or selling a property.

The Value of Professional Agent Support

Real estate agents are not paid by the hour or for completing tasks; they only earn if the transaction successfully closes. This means an agent can spend days or months working with a buyer or seller without receiving compensation if the transaction is not complete.

Benefits of Hiring an Agent:

  • Experience and Market Knowledge: Agents have access to market data and trends that are not available to the general public.
  • Effective Negotiation: An experienced agent can negotiate better terms and prices, which can offset the cost of their commission.
  • Process Management: Agents handle all details, from property advertising to coordinating visits and managing legal documentation.

Does the Buyer Pay Any Commission?
In most cases, the buyer does not pay any commission to the real estate agent. The buyer’s agent’s commission is paid by the seller as part of the total agreed commission.

Can the Seller Save on Commission?
Although some sellers attempt to sell their properties on their own to save on commission, 89% of sellers use the advice and support of a real estate agent. Statistics show that properties sold by agents usually achieve better prices and sell faster than those sold directly by owners.

Conclusion

The new NAR regulations aim to increase transparency and protect consumers in real estate transactions. Understanding how commissions are structured and paid is crucial for any buyer or seller. Despite the costs, the support of a professional real estate agent remains a valuable investment that can significantly facilitate and improve the buying or selling process.

Sources:

  • National Association of REALTORS®
  • Abogado.com – How to Sell a House in the United States
  • Rocket Mortgage – Seller’s Real Estate Agent