What's About to Change About Buying and Selling a Home in Pennsylvania

A shakeup in the homebuying industry is taking affect this week and it could result in big changes for home buyers and sellers. We’ve been following this story and if you’re a potential buyer or seller, here’s what you need to know.

Background

In May, the National Association of Realtors settled a series of class-action lawsuits alleging that its compensation rules, which forced selling agents to advertise compensation paid by sellers to buyer’s agents on listings, essentially amounted to antitrust, reducing competition and artificially inflating commission prices.  The bulk of the settlement, requiring NAR to pay over $400 million in damages, is set to go into effect on August 17th in most parts of the country.  There are three other parts to the settlement that all real estate agents must follow on future transactions.   

What Happens on August 17th?

There are two parts of the settlement that will result in significant changes relating to consumers.

The first is that agents are required to get a signed Buyers Agency Agreement before showing a property to any prospective buyer. This has been the policy in Pennsylvania but not all states. There are options for both buyers and agents in setting up this agreement. Pennsylvania Association of Realtors (PAR) has provided all agents with updated Exclusive and Non-Exclusive Agreements to offer their prospective buyers. These forms set the groundwork for the relationship between the buyer and agent as well as establish a set, agreed upon commission that the buyer’s agent is due when the property settles.

The second, and most significant to consumers, relates to agent commissions. Prior to the settlement, agents who listed properties included offers of shared commissions within their local multiple listing services (MLS) – the platforms on which most homes are listed. It's a tool real estate professionals use to view and share information regarding property listings. This led to most sellers paying about 6% of the home’s sales price, with 3% going to their agent and 3% to the eventual buyer’s agent.  Buyers did not pay a fee to their buyer’s agent.

Starting on the 17th, those advertised offers of compensation are no longer allowed in an MLS. While sellers and their agents can still offer to pay a buyer’s agent's fee, that must happen via outside negotiations.  This means that the buyer agent’s commission that was paid by the seller under the old system might be shifted to the buyer.  This could increase the cost of buying a home.  For example, on a $300,000 home, the buyer agent’s commission of 3% ($9,000.00) that was previously paid by the seller would now be payable by the buyer in addition to the purchase price of the home.

Advice to Buyers

If you’re in the market to buy a home after August 17th, here are some suggestions for you:

Interview multiple buyer agents

If it’s possible that you end up paying a portion of their compensation, you’ll want to get great service.  Start by understanding what a buyer agent should be doing for you so that you know the right questions to ask.  Do they have a website that’s up to date?  What are their online reviews?

Negotiate

Buyers and their agents will need to negotiate compensation directly before viewing homes, not knowing whether the homes they are considering include an offer by the seller to pay a portion or all the buyer agent compensation.  You might agree on a not-to-exceed compensation figure that fits your budget.  Make sure you can get out of an agreement at any time with no strings attached if you’re not happy with the agent’s services. 

Narrow Your Choices

Although commission sharing information will no longer be on the multi-list, we believe agents will find a way to share that information.  This is especially true for agents within the same brokerage or agency.  You may agree to narrow your choices to homes that will not result in you paying any of the agent’s commissions. 

Negotiate with Sellers

You might require your agent to include a commission sharing-proposal in your proposed sales agreements presented to sellers.  This could be a prerequisite to your obligation to pay a portion of their compensation, even if the seller refuses your proposal.

Go it Alone

You can go without an agent, going directly to listing agents.  This has been made easier with websites like Zillow.  There’s an increasing number of homes for sale by owner as well.  This will probably narrow your choices and it may take longer but you can save substantial money. 

Work with a Real Estate Attorney

Managing the transaction on your own comes with its own challenges.  How do you fill out and present a sales agreement?  Are you confident in your negotiation skills?  What happens after an agreement is signed?  How do you find a title company to handle the closing?  Using an experienced real estate attorney is an affordable option.  They have the expertise that you lack and their fees will very likely be far below the commission payable to a buyer agent.

Advice to Sellers

If you’re in the market to sell your home after August 17th, here are some suggestions for you:

Expect to Pay Less

The settlement is an opportunity for sellers to pay less to sell their homes.  The default of paying both side’s commissions should be a thing of the past.  If you’re willing to pay some of the buyer agent compensation, come up with a plan to minimize the amount you pick up.

Expect to Negotiate More

Sellers will have the choice whether they want to offer any compensation to the buyer’s agent – or none at all. But beware: failing to provide a fee – or offering a low one – will likely have some residual blowback.  Sellers expecting to net more on the sale of their home may be surprised that buyers will now be making offers lower than the asking price, due to factoring in the cost of paying for the buyer’s agent’s commission. You also may see a smaller buyer pool if you’re unwilling to pay a portion of the other agent’s fee, as agents may be less likely to show your home.

Try For Sale by Owner

Websites like Zillow, HomeLight and ForSaleByOwner make it easier than ever for homeowners to sell their homes without a realtor.  The payoff is avoiding the large commissions.  These sites may experience an increase in traffic from homebuyers in light of the August 17th changes.  You might give these a try before working with a listing agent. 

Talk with Our Experienced Real Estate Attorneys

If you’re in the market as a buyer or seller, before you do anything, find out what you need to know so that you can make savvy decisions.  Our experienced real estate attorneys are ready to help you with every step. We assist homebuyers and FSBO sellers on a flat fee basis at a rate far less than the commission that you would pay a realtor. Give us a call and take control!