WSJ Your Money Briefing - What Home Buyers Should Know About Negotiating Real-Estate Agent Fees

Episode Date: August 29, 2024

A recent settlement by the National Association of Realtors means home buyers are now responsible for negotiating their agent’s commissions. Wall Street Journal personal finance reporter Veronica Dagher joins host J.R. Whalen to discuss what to know before reviewing contracts and reaching an agreement.  Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

OCI is the single platform for your infrastructure, database, application development, and AI needs. Do more and spend less like Uber, 8x8, and Databricks Mosaic. Take a free test drive of OCI at oracle.com slash wall street. Here's your money briefing for Thursday, August 29th. I'm JR Whalen for The Wall Street Journal. Prospective home buyers have a lot to deal with, like figuring out where they want to live, how much can they afford, what are the schools like in the neighborhood?

Under new rules, if they're using a real estate agent, they'll also be doing the contract negotiating to work out commissions. It's tricky because in our culture, in the US, we're generally not negotiators. And so this is something we definitely have to practice and get more comfortable with. Wall Street Journal personal finance reporter Veronica Dagger will join us to go over what to keep in mind before you sit down at the negotiating table.

That's after the break. or OCI. OCI is the single platform for your infrastructure, database, application development, and AI needs. Do more and spend less like Uber, 8x8, and Databricks Mosaic. Take a free test drive of OCI at oracle.com slash wall street, oracle.com slash wall street. The recent settlement reached by the National Association of Realtors means home buyers are now responsible for negotiating fees with their agents. Wall Street Journal personal finance reporter Veronica Dagger joins me. Veronica, catch us up. What were the broad points of the settlement? Because of this settlement, most home buyers are going to need to sign a binding

contract with their real estate agent, which includes the agent's fee, even before they tore a property together. In the past, you might go around to see various homes with an agent and not have to sign anything, not have to talk about their commission, not have to decide that agent's commission or negotiate with that agent about their commission, not have to decide that agent's commission or negotiate with that agent about their commission. And now most buyers from the jump, the second you want to go see a house, you're going to most likely have to sign a very detailed piece of paper that says how much your agent will be paid, how they're going to be paid, how long you're going to be working together.

It's a legal document that folks usually didn't sign to the closing and so this is very different and obviously the really big change is in the past, buyer's agents were paid by the home seller and how much that agent would be paid would be decided by the home seller. Now, because of the settlement, buyers decide, have to negotiate with their agent, how much their agent will be paid. And that's a big change. Most times, buyers didn't have a whole lot of negotiating power at all in terms of working with agents. And now this is a big switch. This was a landmark settlement and got a lot of attention. Yet in your reporting, you wrote that there's still some uncertainty. What is up for question?

These agreements in a wider scale rolled out about two weekends ago. And in general, it's unclear how much agents are going to be willing to negotiate their commission rate. It's also unclear if some of them are going to change the services they offer. Also, how long are you going to work together? Some agents will want to sign much longer contracts in terms of how long you work together. Other agents will only be willing to sign short-term touring agreements, which doesn't outline their commission potentially.

But in general, most agents will want to sign agreements that say, hey, let's work together for three months as we help you search for a house. And also, by the way, I would like to be paid, say, 3% of whatever the home price is going to be. And now you as the buyer have to say, you know what, hey, I don't know if I need that much help searching for my house. And I don't know if I'm willing to negotiate a commission of 3%. Maybe I want to look at something more like 2% and then you're going to have that back and forth with agents and some agents are going to be willing, probably more junior agents are going to be willing to have this discussion. More experienced senior agents may tell you to get lost. It really depends how much money you're looking to spend on the house and how serious you are about the process.

Another key part in this is that just because the buyer has to or really should negotiate the commission with their buyer's agent, it doesn't mean they're necessarily going to have to pay that money out of pocket. It's still very possible, and this is what we're hearing now, is that sellers, as they have in the past, are offering to cover the commission, build that commission for the buyer's agent into the sales price of the house. And so if that's the case, the buyer can continue to roll the cost of their agent's commission into their

mortgage. And so you are covered in that way. So I want to make sure people aren't scared away from working with agents because they think they can't afford the money out of pocket. How should buyers approach the contract stage with an agent? At minimum, you should ask around about the most common rates in the area. This is going to be more difficult to do now because of the settlements, the multiple listing services,

which typically outlined typical commissions, are no longer able to do that for buyer's agents. And so you're going to really have to rely on word of mouth. The best practice would probably be to talk to friends and family who have recently bought houses to get a sense of how much they're paying. You should also interview probably about three agents or so to get a sense of what they're proposing to charge,

what services they're offering, to get a better sense of the market. But again, this is a kind of a fast changing stew right now. And so buyers, unfortunately, or fortunately, maybe depending on how you look at it, are going to have to do a lot more legwork before they even step foot in the house. Also, when you do negotiate with agents,

remember there are people too, they're trying to make a living, they're not out to get you in general. So let's get clear about what you can get afford before you start to negotiate, what services you would like the agent to provide. For a lot of people, they just wanna buy a house, but now all of a sudden they have to have a new skill set

to be a negotiator. Yeah, it's tricky because in our culture in the US, we're generally not negotiators. It's not really a common practice for us as it is in some other countries. And so this is something we definitely have to practice and get more comfortable with. You could always record yourself into your phone practicing what a negotiation might be like, maybe have a friend, pretend to be the other side, just to get more comfortable with some of the words. And you have to be a lot more educated

in terms of what's available in the marketplace in terms of services agents will offer. Now, not everyone's gonna have time for all of this. And so understand if you don't negotiate, you may end up paying more for the house. So that's something to consider. Also, there are people who can help you. There are plenty of real estate attorneys out there who can assist, can look at these contracts, including the contracting you need to sign with the buyer's agent,

and also other contracts that you may be confused about. And having to be crystal clear on the fees so early in the process is new as well, right? That is new and usually that was something that would happen more towards the closing or there's more an understanding that buyer's agents would be paid between 2.5 percent and 3 percent of the overall home price. Now that's not a given and so it's pretty muddy and people are trying to find their way through this. Buyers need to know that once you agree to something with your agent the realtor can't collect more than that amount. There's something that's happening on the margins

right now that in these very long contracts some realtors are trying to sneak junk fees into those contracts. So they may say like, oh yeah, I'll agree to a 2% commission, but you're going to have to pay another thousand to fifteen hundred dollars of various administrative fees. Experts I've spoken to say don't agree to pay those fees. If you see that in a contract, just take the red pen and X that out. You don't want to be paying those extra fees. There's no need for that. That's WSJ reporter Veronica Dagger and that's it for your money briefing. This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm JR Whelan for the Wall Street Journal. Thanks for watching!