As Big Changes Take Effect, Realtors Brace

Beginning Saturday, a sea change goes into effect for those looking to buy or sell homes, and the real estate agents on either side of the deal—and the latter group may be clutching their pearls and perhaps dusting off resumes. In what CNN calls a "seismic shift" in how the American real estate market works, new rules are going into effect. So what's going on?

• The old way: Home sellers have historically paid commissions of between 5% and 6%, split between the agents representing them and the buyers, per the New York Times. That has represented a pretty steep but long-accepted dip in home equity—typically $6,000 per $100,000 of sale value. That can lead to a pretty payday for an agent who sells a $1 million home, but on the flip side, agents who don't close a deal can spend a lot of money out of pocket for zero payday. They are classified as independent contractors, and thus their commissions make their livelihoods—and pay for things like health insurance.

• How that compares: American home-sellers pay out some $100 billion a year based on that 5% to 6% commission rate, reports the Gainesville Sun. Other major countries see commission rate of less than 2%, notes the Wall Street Journal.
• The reduction: Citing an analysis by TD Cowen Insights, CNN reports that commissions could drop by a quarter to half under the new rules, which could leave alternative companies with a flat rate sitting pretty. It could also drive a fair amount of real estate agents from the industry.
• Change 1: Selling agents can't share compensation details over their MLS—multiple listing services, which are internal, subscriber-based databases that the public isn't privy to. The inherent problem here was that buyers' agents would often look for higher commissions and steer buyers in that more lucrative direction. Commission details can still be advertised or explained over the phone.
• Change 2: Buyers' agents must disclose their commissions to clients in a written agreement, before ever going to view a home—and if sellers should opt to not pay a buyer's agent's commission, then the buyer is on the hook for it.
• The reaction: The real estate world at large, inherently a volatile one, seems to be playing down the changes. "This is a grand social experiment in an industry at scale," says Leo Pareja, CEO of eXp Realty. "I'm bracing my agents for what I call the 'messy middle.' I fully expect a lot of confusion."

(More National Association of Realtors stories.)