Holden Lewis is a mortgage reporter and spokesperson who joined NerdWallet in 2017. He previously wrote for Bankrate, where he wrote about mortgages and real estate during the housing boom and bust. He has written articles about mortgages since 2001, and enjoys explaining complex topics to regular people who don't buy houses every day. Holden has been president of the National Association of Real Estate Editors and has won numerous writing awards. He splits his time between Jupiter, Florida, and Fort Worth, where he is renovating the house where he spent his high school years so he can move back and be a Texan again.
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Dawnielle Robinson-Walker spent 16 years as a college English instructor, teaching creative writing and African-American literature before she began writing and editing for various companies and online publications. Prior to joining NerdWallet, she was an editor at Hallmark Cards and a contributing writer at Forbes Health.
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When you buy a house on or after Aug. 17, you'll do things differently than before. Rules will change on that date, due to the settlement of an antitrust lawsuit.
Unlike before, you will decide how much your real estate agent will be paid for representing you when you buy a home. And your agent won't be paid by the seller's agent. Instead, you'll probably ask the home's seller to pay your agent — a request that will be subject to negotiation.
In short: It won't be the same purchasing process that your parents, siblings and friends went through when they bought their homes before the legal settlement with the National Association of Realtors .
Here's how the new process will work.
You're browsing real estate websites and you've spotted a house that you want to visit so you can see inside — this is known as a home tour. Before a real estate agent escorts you inside, you will be required to sign an agreement that defines what the agent will do for you.
The agreement can outline a lightweight and short-term relationship with the agent or it can be a longer-term contract — whatever you negotiate.
On the lightweight end of the spectrum, you could sign a touring agreement that lasts a day or a week or gives you access to just one or two houses. Think of it as giving the agent an unpaid audition. "I give them options. Option one is we could just sign the agreement just for today," says Danielle Rownin, real estate agent with Keller Williams Realty in Connecticut. If the agent and client aren't a good fit, she adds, the agreement expires at midnight "and we're free to move on."
You'll sign an agreement even if the agent gives you a virtual tour, which is typically done by walking around the house with a cell phone camera. But you won't have to sign a touring agreement to visit an open house. Likewise, you won't have to sign an agreement for the seller's agent to give you a tour of the home, because that agent is working for the seller and not for you.
At some point, you'll officially hire a buyer's agent . You'll sign a wordier and longer-term contract that not only describes the agent's responsibilities, but also how much the agent will be paid. It might be called a buyer agency agreement, a buyer-broker agreement or a buyer representation agreement. These agreements aren't new; in fact, they've been required in some states. But now they'll be required just about everywhere.
This could be the first contract you sign; you don't have to use touring agreements. Or you might build a rapport with an agent during a touring agreement and convert it into a buyer agency contract.
It's still possible to buy a house without hiring your own agent to represent you, but it's discouraged.
The contract will spell out how much you will pay the agent for representing you. "It could be a flat fee — small or large — or it could be a percentage of the purchase price," says Leo Pareja, CEO of eXp Realty.
Real estate brokerages will experiment with flat fees and other pay structures such as hourly rates. But for now, most buyer's agents will charge commissions that are a percentage of the home's price. Experienced agents might request higher percentages, and newbie agents might ask for less. You'll have to put on your negotiating shoes and push for a commission that works for you.
If a buyer's agent requests a 3% commission, "You should definitely say, 'That seems high to me. Would you be willing to lower that figure?' That's all you have to say," says Stephen Brobeck, senior fellow for the Consumer Federation of America.
Some agents might respond with a lower commission. Others might hold firm, telling you that you get what you pay for. This unyielding approach might impress you if you believe it means they'll advocate zealously for you. Just keep in mind that there are plenty of agents who will compete for your business, and some might charge less. You don't have to sign a contract with the first agent you negotiate with.
Percentages are abstract numbers, so doing the math to calculate the cost of the commission in dollars can help you understand what you're committing yourself to. Take a $400,000 home, for example. A 3% commission would amount to $12,000, while a 2.5% commission would cost $10,000.
The duration of the contract is another thing you'll negotiate. The agent might want to lock you in for 90 days, explaining that we're in a seller's market and it might take a while to make a successful offer. However, Brobeck says 90 days is too long. "You should not accept anything more than 60, and you should ask for 30," he says, explaining that you can renew the contract when it expires (if you're satisfied with your agent).
Read the contract thoroughly and ask the agent to explain anything that's unclear. If you still feel confused, seek a lawyer's advice — it might be worth the price.
Watch out for fees on top of the commission, said Wendy Gilch, deputy director of Consumer Advocates In American Real Estate. "Admin fees, brokerage fees, transaction fees, regulatory compliance fees are junk fees and buyers should negotiate them out," she said in an email. "They’ve become rampant, with some brokerages charging $800 to buyers on top of commission collected."
The contract can specify the geographic area it applies to. It can be one address, one or more ZIP codes, a city, a county — whatever you negotiate. Gilch recommends against letting the agreement cover the whole state because that's asking too much.
When you make an offer on a house, you can ask the seller to pay your agent in what is called a seller's concession.
Having the seller pay your agent will be a relief if you're already stressing about how you're going to afford the earnest money deposit, the down payment and the closing costs. Your agent's commission will be thousands of dollars, and many buyers don't have that kind of money lying around.
"The seller has the ability to pay the buyer's agent," says Courtney Johnson Rose, president of the National Association of Real Estate Brokers, an industry group for Black agents. "That's the seller's prerogative."
Here's an example of how it can work: You offer $400,000 for the house on the condition that the seller pays your agent 2.5%, or $10,000. That means the seller nets $390,000 before paying the listing agent, taxes and closing costs.
You might find that the seller already has indicated a willingness to pay a concession of, say, up to 3% of the purchase price to pay the buyer's agent or contribute to closing costs. In such a case, the seller won't object to your request for money to pay your agent.
Even if the seller hasn't signaled a willingness to pay your agent, you can still ask. It might be in the seller's interest to pay. "Sellers who choose to offer said compensation will attract more buyers, get the best price and sell more quickly," Rownin said in an email.
In a welcome change in policy, VA borrowers — home buyers with loans guaranteed by the Department of Veterans Affairs — will be allowed to pay their agents directly or via seller concession.
Finally, a word on the value of negotiating a lower commission with your agent. Look again at the example in which you offer $400,000 and ask the seller to pass along 2.5% of it, or $10,000, to your agent.
Now imagine a competing buyer who also offers $400,000 — but asks for 3%, or $12,000, to pay their agent.
Your offer lets the seller collect $2,000 more. The difference could tip the offer in your favor because you negotiated a better deal with your agent.
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Holden is NerdWallet's authority on mortgages and real estate. He has reported on mortgages since 2001, winning multiple awards. See full bio.
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