3 tips for homebuyers to navigate the new era of commissions
Homebuyers suddenly face uncharted territory in the wake of a Realtor settlement that dismantles the way agent commissions are paid. On one hand, buyers could face more financial hurdles on top of exorbitant financing costs and elevated home prices. On the other hand, they stand to gain greater price transparency and negotiating power as the new norm rolls out.
Last week, the National Association of Realtors agreed to a settlement, which is subject to approval by a federal judge, that would eliminate the standard 6% commission paid by sellers and shift some of that responsibility to buyers.
We spoke with industry experts about the ramifications for homebuyers. Here are their tips to navigate the process and come out ahead.
Read more: How to sell your house without a Realtor
Tip #1: Shop for suitable agents
First step: Compare shops and hire an agent who delivers true value.
You should take a hard look at your personal needs, budget, and knowledge of the homebuying process. First-time buyers may need a hands-on agent who can walk them through the entire buying process, while seasoned buyers who have bought and sold multiple homes don’t necessarily need that comprehensive service.
"If you are a first-time homebuyer and you don't know anything about what's going on or what is special about each neighborhood, it's easier to get help," Lei Wedge, an associate professor in investments and real estate at the University of South Florida, told Yahoo Finance.
Look for an agent who offers the elements that can help you find the right home: a local neighborhood expert if you are moving to a new city, a financing guru if you have limited cash, or a strong negotiator if you want a good deal. Maybe even all three.
"Research and interview potential agents," Stephen Brobeck, a senior fellow at the Consumer Federation of America, told Yahoo Finance.
This has always been a best practice — the difference now is you’ll need to determine how and how much to pay because home sellers are no longer picking up the tab automatically.
Agents may get creative with fees — with some negotiating their compensation as part of sellers' concessions or embedding their fee in your mortgage payment — methods that homebuyers need to agree to before signing with an agent.
"Don't sign a contract until you are satisfied," Brobeck said. "And if you're not satisfied after discussing and doing your own research, go to another agent."
Tip #2: Utilize limited services or 'a la carte' options
Instead of hiring a full-service agent who manages every step of the purchase process, find someone who offers reduced service by stepping in after you have found your home. That means you would take on the early work — such as researching neighborhoods and scheduling home-viewing appointments — and leave the technical aspects to hired professionals to close the deal.
"That would provide more flexibility and potentially a lot lower costs," Steven Nicastro, Realtor and project team lead at Clever Real Estate, a discounted online brokerage, told Yahoo Finance.
If partial service agents are still too costly, opt for 'a la carte' assistance — an option that experts said will become more popular. This means picking from a menu of services like home valuation, preliminary inspection, or contract drafting.
"You can go to the internet, find your home, call the listing agent, see the homes yourself,” Wedge said, “and when you need to make an offer, hire an agent charging $500 to write a contract for you."
If you don’t know how to negotiate a home purchase — and most people probably don’t — ‘a la carte’ provides the option to hire an agent to do just that. They would take charge of getting you benefits like closing cost concessions, earlier moving dates, and repair credits.
"[Negotiation] is like science," Nicastro said. "If you are a buyer's agent and have done lots of deals, you know how to negotiate. You know how willing the sellers are to negotiate based on discussion with the listing agent and how long the house has been on the market."
You could also purchase access to the Multiple Listing Service (MLS), the Realtor association’s private database tracking for-sale homes that is created and maintained by professionals. This platform contains exclusive and first-hand information not available on mainstream listing sites such as Zillow. Before making an offer, you can compile a competitive market analysis on the MLS, giving you a leg up during the buying process.
Tip #3: Negotiate for reduced agent fees
The biggest edge buyers gained from the settlement: negotiating power. Haggle for lower commissions or smaller fees that match the value of services rendered.
You can leverage the discussion based on how much time the agent would spend helping you buy the home.
"Sometimes some buyers shop around for a weekend, and they find a home they like, and they make an offer,” Wedge said. “In such cases, buyers should negotiate for lower fees because this is not much work for the agents, so it's not fair for the agents to get paid 3%."
You can also offer a lower commission on a more expensive home that still guarantees a good payout.
"If [someone] is buying a $2 million home, [agents] can get 1% because that would still be $20,000. That’s enough money,” Wedge said.
Lastly, your mental and financial readiness should factor into the 'right' price to compensate your agent.
"You could have someone who wants to see a ton of houses and just doesn't know what they want yet, that makes it really challenging for it to be worth an agent's time," Nicastro said. "Versus someone who's ready to go and pre-approved, knows the exact type of house they want to buy. So those are two different scenarios."
In non-extreme cases, Clever's CEO is predicting most deals will settle at a 1.5% to 2% commission for buyers' agents.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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