A lawsuit over how realtor commissions are paid has triggered a major industry shift and highlighted concerns about transparency, competition and fairness in the real estate market. The traditional practice under which funds from sellers pay both their realtor and the agent for the buyer is being phased out. While commission terms were always technically up for negotiation, the system typically involved agents for sellers using part of their commission to compensate agents for bringing a buyer to their property.

As a result of the case, buyers will now pay their realtor out of their own pocket. This likely will have several potential effects, such as:

• Lower contractual commissions for selling realtors — Though there have been occasional challenges, most selling relators in residential transactions usually receive between 5 and 6 percent of the sale price as a commission. This amount most often has been split with the agent for the buyer among terms that the realtors work out themselves. Now that they will keep the entire commission, the percentage directed to selling realtors should be reduced sharply. 

• Changes to mortgage rules — Under the traditional system, money that the home buyer contributed toward their agent’s commission would be part of the overall sale price and could be covered within their mortgage. Presently, a mortgage cannot be used to pay that type of out-of-pocket cost. However, that could be changed so that buyers can gain the potential tax advantage and pay back the commission over time. 

• Increased transparency — Technological advancements and the rise of digital platforms have empowered consumers with access to more information and options when buying or selling a home. However, the specific commission split often remained a mystery and buying agents were more likely to bring clients to homes where they’d get a larger cut. With each side paying their own realtors, online marketplaces and discount brokerages might be viable alternatives to traditional full-service agents, allowing consumers to save on commissions while still accessing essential services.

In response to these shifts in the market landscape and regulatory scrutiny, real estate professionals are adapting their business models and practices to remain competitive and compliant with evolving legal standards. More than ever, a skillful residential real estate attorney is a critical resource so that buyers and sellers can make smart decisions with the information they now have. 

The Law Offices of James C. Zimmermann has locations in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley to guide clients through residential real estate transactions. Please call 973-764-1633 or contact us online for a free initial consultation.