Here's how proposed real estate commission changes could upend who pays for what when buying a home
PITTSBURGH (KDKA) -- It awaits final approval, but a change in the way commissions are charged in real estate transactions could upend who pays for what when buying a home.
It's still too early to tell what this means for the home seller, home buyer and real estate agent.
Anyone who has sold or bought a home knows the deal: the seller is usually charged 5 to 6 percent of the home's price as commission that gets split between the seller's real estate listing agent and the buyer's real estate agent at closing.
Still subject to the court and Justice Department approval, the National Association of Realtors has agreed to a major change in an effort to settle a lawsuit.
"What is proposed is that the listing agent only negotiates the listing agent commission, and the buyer's agent is going to negotiate only with the buyers," said mortgage broker expert Jim Martin.
That could mean lower commission fees for the seller and perhaps a reduced selling price for his home, but the buyer would have to come up with their own dollars to hire a buying agent.
Take the average Pittsburgh home sale price of $250,000 with a 6 percent, or $15,000 commission, often split evenly. Under the proposed change, the seller would include the commission for his agent in the sale price of his home, but what about the buyer?
"Now, the question is who's going to pay for it? If the buyer has to come up with additional cash, another $7,500 to close on a house, then obviously that's going to put the squeeze on how many buyers can buy houses," Martin said.
Mortgage broker Jim Martin, who deals with real estate transactions every day, worries this could impact new homebuyers and the cash-poor.
"The people who are going to be hurt most with this are those with the least amount of cash. So think about the first-time homebuyers or those at the bottom end of the market. They're the ones who are going to have to find a way to get into this transaction," Martin said.
It could also affect realtors. America's high real estate commission rates could drop to something closer Great Britain's 1 to 2 percent. Some think one-half of America's 2 million agents could be out of business, and it may lead to a growth in flat-fees for agents and more discount real estate firms and online home sales without any agents at all.
"There are a lot of internet players and online players that are looking for ways to provide services to both buyers and sellers by doing it all online," Martin said.
Again, nothing has happened yet. The current rules remain since this is just a proposed settlement, but you can expect changes in this arena in the year ahead.