Explore the Impacts, Implications and Possible Solutions to Changing Compensation Models

Note: This blog was updated with new information and insights on August 20, 2024. It was originally published on April 16, 2024.

Meeting the Challenges of Today’s U.S. Real Estate Market

Exploring the impacts, implications and possible solutions to changing compensation models for real estate professionals.

This is Part II of a two-part blog series about U.S. real estate trends. Part I focuses on general market trends, impacts to mobility programs and possible policy adjustment solutions – check it out here. 

Amid calls for greater transparency and concern about high U.S. housing transaction costs, the way mobile employees and mobility managers work with real estate agents is changing. Since many U.S. real estate professionals are members of the National Association of Realtors® (NAR), agents and brokers were bound until recently to the association’s cooperative compensation rule, which stated in the listing the amount of commission a buyer’s agent would receive from the seller as a condition of inclusion on Multiple Listing Services (MLS).  

Changes to the Real Estate Professional Compensation Model 

There are three primary agent compensation changes outlined in the NAR settlement that will shift the way homes are bought and sold in the U.S.: 

• Commission negotiation. Traditionally, home sellers have paid for both the commissions to their own agent and also to the buyer’s agent. Under the new rules, commission percentages and amounts for each home purchase and sale will need to be negotiated on a case-by-case basis among the sellers, buyers and their respective agents. This could mean anything from sellers continuing to pay commissions to their agents and the buyers’ agents, to buyers paying their agents’ commissions – it’s all up for discussion.  
• Commission displays. Brokers can no longer display a commission rate to buyers’ agents on MLS listings; instead, buyers must be part of compensation negotiations. Some sellers may choose not to compensate buyers’ agents, leaving agents and buyers to work it out on their own. Some buyers may choose a more limited menu of buyer agent services, to reduce their costs versus a traditional commission. All of this adds another layer of complexity and uncertainty, as buyers won’t have a full picture of the cash needed at closing until after negotiating with sellers, the listing agent and their agent. 
• Buyer agency agreements. Moving forward, buyers will be required to sign a buyer agreement with their real estate broker, outlining services, expectations and compensation. These agreements will vary state by state, adding still more complexity. While the widespread adoption of such agreements is new, the concept is not – prior to the NAR settlement, many states already had buyer agency agreement requirements. Also keep in mind that mobile employees with active purchase or listing agreements likely will need to do new paperwork to be compliant with the changes.

Implications for Talent Mobility Programs and Mobile Employees 

The biggest question circulating throughout the industry is, “What do these changes mean for my mobility program and mobile employees?” 

While the situation will become clearer in late 2024, as the new regulations play out, there are a few implications mobility managers should outline for mobile employees, depending on each company’s relocation benefit policies. Mobile employees who are eligible for generous home sale or purchase benefits may not face these challenges, whereas employees whose benefits are less comprehensive – for example, lump sum assignees – may need more information or guidance:

• For buyers, the changes may mean added expense to cover the cost of a real estate agent’s services formerly paid for by the seller, depending on how commissions are negotiated. Buyers may need more cash at closing to cover their agent’s commission, in addition to the downpayment and other closing costs. They may need to negotiate this with sellers, the listing agent or their own buyer agent. All of this adds ambiguity and worry to the transaction. However, many buyers feel that having an agent’s support and expertise is important for creating a positive experience. Agents can help guide families towards smart decisions, while writing the contract, negotiating the sales price, handling inspections and contingencies and managing other parts of the home buying process.  
• For sellers, they may pay less if they choose not to pay a commission to the buyers’ agent. But not compensating buyers’ agents may mean the home requires extended marketing time or sells more slowly or for less than the original asking price, if the seller’s relocation benefits program does not include their company paying a listing and buyer agent commission.   
• The terms of every buyer-broker agreement could be different based on negotiations; mobile employees should understand potential agreement structures and impacts. Some agreements may include a more a la carte approach – paying a flat fee for an agent’s time – while others may create a more traditional agent-buyer partnership. Before mobile employees sign any buyer agency agreements, they should consult with their company’s relocation management company (RMC).   

RMCs and mobility professionals need to communicate with mobile employees about changing real estate professional commission rules and offer guidance on how to navigate the new buying and selling landscape, including resources for information and assistance, and which benefits are and are not offered. It’s important to reinforce that even the most seasoned home buyers and sellers will experience new processes moving forward.
 

Hannah, our enterprising fictional intern from the State of Mobility Mobile Employee Journeys, is back to help us understand the implications of the NAR settlement and shifting agent compensation regulations. View the full infographic journey.

Working Toward Possible Solutions