New NAR Rules Are a Bargaining Chip, Putting Pressure on Commissions in Competitive Markets, But Redfin Agents Say Most Sellers Are Willing to Cover Some Fees

Rhea-AI Summary

Redfin (NASDAQ: RDFN) reports that commission negotiations have become more common in some markets and for higher-priced homes following new National Association of Realtors rules. The impact varies by location, with slow markets seeing little change and competitive markets experiencing more fee discussions. Most sellers are still willing to cover buyer's agent fees, but some are now asking buyers to make their best offer.

Key findings include:

• Typical buyer's agent commission slightly decreased to 2.55%
• Buyers are confused about signing fee agreements before home tours
• Luxury market sees more pressure on commissions
• Sellers are evaluating fee strategies based on market conditions
• Some listing agents are finding creative ways to communicate fee offers

Positive

• Most sellers are still willing to cover buyer's agent fees
• Redfin offers competitive buyer agent fees as low as 1.75% depending on the market
• Some markets have not experienced significant changes in commission structures

Negative

• Commission negotiations have become more common, potentially leading to lower fees for agents
• Removal of commission offers from MLS has resulted in more back-and-forth communication between agents
• Buyers are confused about signing fee agreements before home tours, which could slow down the process
• Downward pressure on buyer's agent commissions for high-end listings

Insights

Real Estate Market Analyst

The new NAR rules are causing a shift in commission negotiations, particularly in competitive markets and luxury segments. This could lead to downward pressure on buyer's agent commissions, potentially reducing overall transaction costs. However, the impact varies significantly by market, with high-demand areas seeing more fee negotiations while slower markets maintain status quo.

The requirement for upfront fee agreements may create friction in the home-buying process, potentially slowing down transactions. This could impact market liquidity in the short term. Long-term, it may lead to more transparent and competitive pricing in real estate services, benefiting consumers but potentially squeezing profit margins for brokerages and agents.

Investors should monitor how these changes affect Redfin's revenue and market share, given their competitive fee structure. The company's tech-driven approach may provide an advantage in adapting to the new landscape, potentially leading to increased market share if traditional brokerages struggle with the transition.

Consumer Behavior Specialist

The new rules are creating confusion among homebuyers, particularly regarding fee agreements before home tours. This confusion could lead to hesitation in the market, potentially slowing transaction volumes in the short term. However, it also presents an opportunity for brokerages to differentiate themselves through consumer-friendly policies and transparent pricing.

The shift towards negotiable commissions is likely to empower savvy consumers, especially in the luxury market. This could lead to a more dynamic and price-sensitive real estate service market. Companies that can effectively educate consumers and provide clear value propositions will likely gain an advantage.

Long-term, these changes may foster a more informed and discerning consumer base in real estate transactions. This could lead to increased demand for data-driven, transparent services, potentially benefiting tech-forward companies like Redfin. Investors should watch for shifts in consumer preferences and behaviors as indicators of future market trends.

Financial Analyst

The evolving commission landscape presents both opportunities and challenges for Redfin (NASDAQ: RDFN). Their competitive fee structure, as low as 1.75% in some markets, positions them well in a more price-sensitive environment. However, increased fee negotiations could potentially pressure margins across the industry.

Redfin's technology-driven approach and simplified fee agreement process may provide a competitive advantage in adapting to the new rules. This could lead to increased market share, particularly if traditional brokerages struggle with the transition. However, investors should closely monitor the impact on revenue per transaction and overall profitability.

The company's ability to leverage its technology platform to streamline processes and reduce costs will be important in maintaining profitability in a potentially lower-fee environment. Investors should watch for Redfin's ability to scale its operations and increase market share as key indicators of long-term success in this changing landscape.

A few weeks after the new industry rules went into effect, some homebuyers are confused about fee agreements and who is responsible for paying the buyer’s agent.

Most sellers are still willing to cover the buyside commission–but negotiation has become more common in some markets and at higher price points, which could put pressure on fees

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Redfin, the technology-powered real estate brokerage, reported today that negotiation over commissions has become more common in some markets and at higher price points in the wake of industry rule changes mandated by the National Association of Realtors legal settlement.

The report focuses on interviews with dozens of Redfin agents around the country about how buyers and sellers are responding to the reforms. While consumers and agents are still adjusting to the new rules, Redfin agents are seeing different impacts in different parts of the country. In some areas, negotiations over fees are becoming more common, while other markets have not experienced much change at all.

“We've found a tale of two markets," said Redfin Chief Economist Daryl Fairweather. "In slow markets where there's less demand from homebuyers, like Austin, agents report that most sellers are still willing to pay the buyer's agent commission to attract buyers, and agent fees are mostly the same as before. In markets with low inventory and robust demand, like San Francisco and Boston, agents report more instances of negotiation around fees, with sellers asking buyers to make their best offer rather than preemptively deciding what they want to offer a buyer’s agent. Now, like the amount of earnest money deposit or including an inspection contingency, the amount the buyer is asking the seller to pay her agent is a term that impacts the strength of the offer. That will likely drive fees down over time.”

A Redfin analysis in July found the typical buyer's agent commission was 2.55%, down slightly from before the settlement was announced. The new rules have made it harder to track fees by removing them from the MLS.

Under the new requirements, which took effect August 17, listing agents may no longer include a unilateral offer for the buyer’s agent commission in NAR-affiliated multiple listing services (MLSs), and agents must tell potential buyers what they charge before buyers start touring homes.

Buyers are confused about signing an agreement before a home tour.

The requirement that agents and buyers agree on fees before they tour is intended to make fees more transparent. But buyers are understandably wary about signing paperwork to tour homes.

Redfin’s approach is to ask house hunters to sign a simple fee agreement–which can be signed online with one click–before their first home tour. The agreement doesn’t obligate the customer to use Redfin; its purpose is to tell prospective clients what Redfin would charge if a Redfin agent were to represent them. Once a prospective client has met a Redfin agent, they can decide whether to continue working with them and take advantage of Redfin's best pricing with its Sign & Save program. Redfin offers competitive buyer agent fees as low as 1.75% depending on the market.

Many agents at other brokerages are taking a more heavy-handed approach, requiring buyers to sign a full buyer agency agreement to tour. These agreements typically obligate the buyer to work exclusively with that agent for their home purchase for a certain period of time.

Alex Galanis, a Redfin Premier agent in San Diego, says, “I showed a $4.75 million home in Carlsbad. The buyer told me she tried scheduling a showing with another agent, but immediately that agent sent her a 12 page buyer representation agreement for signatures. She found it very off-putting, and appreciated our approach. I want to win a customer’s business as much as the next agent, but I don’t think anyone should be forced to make such a big decision before we’ve had a chance to meet.”

The biggest change: Buyers and sellers are negotiating over who pays the buyer’s agent, and how much they’re paid. This is especially true in the luxury market.

The NAR settlement has led more sellers to realize commissions are negotiable, and that they might be able to get the buyer to cover some or all of the buyside commission. The consensus from agents: Like most parts of a real estate deal, how much a buyer or seller can negotiate depends on demand for the listing.

"While I’ve always let my sellers know they can offer whatever commission they want and don’t have to offer anything at all, my sellers are having the conversation with me in more depth than ever before,” explained Blakely Minton, a Redfin Premier agent in Philadelphia. “I recently had a seller decide to offer 1.5%. I let them know offering less commission would most likely mean the buyer has to make up the difference, and it would only matter if you don’t have demand for your home. That 1.5% home listed at $350,000 and got 12 offers. It was a great little home right near the University of Delaware. Half the offers we got still asked for 2.5%. But the two highest offers accepted that the seller would pay just 1.5% to the buyer’s agent."

Las Vegas Redfin Premier agent Fernanda Kriese says: “It’s all price-specific and seller-specific. Sellers understand that agents aren’t going to work for free, but they’re thinking about what percentage they’re going to offer the buyer’s agent: Maybe it’s 2%, maybe it’s 2.5%, maybe it’s 3%, depending on how desirable the listing is. And ultimately, the commission goes together with the price. Sellers may have to list slightly higher if they’re offering to pay a higher commission to the buyer’s agent, and vice versa.”

Agents are reporting there’s more downward pressure on buyer’s agent commissions for high-end listings.

“Buyers and sellers of luxury homes are more likely to negotiate agent fees, which makes sense because on a $5 million home every half a percent is $25,000,” says Mimi Trieu, a Redfin Premier agent in Silicon Valley. “They want to make sure they are getting value from their agent. My luxury listings aren’t offering a certain buyside commission. If the buyer makes a great offer, they’ll consider paying the buyer’s agent.”

But even though negotiations are becoming more common, most sellers are still willing to help cover the buyer’s agent fees.

Before, sellers proactively advertised a commission in the MLS that they were willing to pay any agent who represented the buyer. And often the buyer’s agent accepted the commission offered. Now sellers are evaluating their options and deciding on a strategy based on the housing market and the competition they expect for their home. By and large, most are still willing to cover the buyer agent fee as long as they still net their desired amount.

In New Jersey, Redfin Premier agent Amira Elgoneimy continues to see sellers proactively offer a commission to buyer’s agents. “Sellers in my area are still offering to pay commission to the buyer’s agent in all price points, so far. I wrote five offers the first two weeks the rules were in effect. In all five, we knew the seller was offering to pay commission.”

Gregory Eubanks, a Los Angeles Redfin Premier agent says,“With sellers, I’m laying everything out upfront, presenting the options for payment to the buyer’s agent. One, don’t offer a buyer’s agent commission at all. Two, state that you’re open to paying buyside commission but don’t provide an exact number. Three, go ahead and put a number out there–it can’t be advertised over the MLS, but listing agents can communicate it to buyer’s agents in different ways.”

Removing the offer of compensation from the MLS has resulted in more back and forth between agents when scheduling a showing, with more buyers’ agents contacting listing agents to ask if the seller is offering compensation or open to it. Redfin agents report some listing agents are communicating what the seller is willing to pay buyer’s agents in creative ways. In Dallas and Portland, for example, our agents have seen instances of “3%” written on a lockbox. Still, most agents report they’re mostly communicating about fees via phone calls and texts.

To read the full report with additional agent anecdotes, visit: https://www.redfin.com/news/redfin-agents-report-nar-rules-negotiation

View source version on businesswire.com: https://www.businesswire.com/news/home/20240909960359/en/

Redfin Journalist Services:

Alina Ptaszynski

press@redfin.com

Source: Redfin

FAQ

How have the new NAR rules affected real estate commissions according to Redfin (RDFN)?

According to Redfin (RDFN), the new NAR rules have led to more commission negotiations in some markets, especially for higher-priced homes. However, most sellers are still willing to cover buyer's agent fees, with the impact varying by location and market conditions.

What is the typical buyer's agent commission rate after the NAR rule changes, as reported by Redfin (RDFN)?

Redfin (RDFN) reports that the typical buyer's agent commission has slightly decreased to 2.55% following the NAR rule changes.

How are luxury home sales affected by the new NAR rules, according to Redfin (RDFN)?

Redfin (RDFN) reports that the luxury market is seeing more downward pressure on buyer's agent commissions, with buyers and sellers of high-end homes more likely to negotiate agent fees due to the larger sums involved.

What challenges are buyers facing with the new NAR rules, as per Redfin's (RDFN) report?

According to Redfin (RDFN), buyers are confused about signing fee agreements before home tours, which is now required under the new NAR rules. This confusion could potentially slow down the home buying process.