Margaret Nelson: Buying or selling a home? The commission you pay is changing

By MARGARET NELSON

For decades real estate agents across the country, and here in Alaska, have been splitting a commission fee paid by the seller of 5 to 7%. Not anymore. Changes resulting from a legal settlement go into effect today, which may end up costing more for a buyer to purchase a home, and less for a seller to sell.

As of today, Alaska sellers will not “automatically” be offering to pay the commissions for licensees (agents are called licensees in Alaska) who represent buyers. This change is happening across the United States as the National Association of Realtors (NAR) and Multiple Listing Services (MLS) agreed to new rules to settle class action lawsuits brought in 2023 that accused them of keeping commissions artificially high. The Realtors agreed to pay $418 million in the next four years to home buyers, of which our local Alaska MLS is participating, as well as change some of its practices. All denied any wrongdoing.

­­­­­­­­­­­­­­­­­New Real Estate Rules

• Buyers & sellers negotiate commissions
• Buyers may pay their licensee fee
• Sellers cannot list commission to buyer licensee in MLS
• Buyers must sign a representation agreement outlining fees & services 

Prior to the lawsuit, it was customary for an Alaska home seller to pay between 5% and 7% commission on the sale, which was then split between the seller’s licensee and the buyer’s licensee.

Under the new rules, sellers no longer have to pay a buyer’s licensee at all, can agree to pay it, or only pay a portion. It’s all negotiable. Buyers will then have to pay the buyer’s licensee’s commission not covered by the seller. Both buyer and seller are free to negotiate those fees with their licensees. While commissions were always negotiable, this brings more clarity to the process.

Buying or selling a home is already confusing to most and the process gets more complicated every year. I predict that this will have the most impact on buyers who already have to come up with down payment funds and closing costs. Add a commission onto their plate and homebuyers will have difficulty coming with the funds. This situation is exacerbated, since mortgage lending rules do not allow commissions in loan closing costs. 

Thousands of dollars are at stake, so it will be more important for the buyers and sellers to understand how commission plays a role in buying or selling a home.

In Anchorage, the average sale price of a home in 2024 is $366,600, according to Alaska MLS. Based upon a 5% commission that translates into $18,330, which in the past was split between the buyer’s and seller’s licensee.

Now the seller could be paying less, but the buyer, who in the past has normally not paid any of the costs, would pay more and in this case up to $9,000 more.

What this means for buyers

Under the settlement, buyers will be required to sign a written agreement with your licensee which details commissions and/or fees. This agreement essentially states that licensees do not work for free and what the licensees expect to be paid for the services representing you as a buyer. I

f your buyer’s representative is unsuccessful in getting the seller to pay all or part of the commission, through negotiations, the licensee will expect the buyer to pay for buyer’s representation services. Buyers and their licensee will agree on what services will be performed and at what rate of pay. The pay can be via commission, an hourly rate or a fixed fee. Again, it’s all negotiated. 

What this means for sellers

As part of the NAR settlement agreement, Sellers are no longer required to compensate buyer’s licensees, and if they agree to do so, they do not have to tell in advance what they are willing to pay buyers’ licensees. That commission cannot be posted in MLS listings, per the settlement.

Allegedly the prior practice was “anti-competitive”, and consumer advocates argued that it left sellers paying the full commission. And they said buyers were not taking advantage of their bargaining power but relied on selling licensees to control that part of the transaction. Time will tell how this plays out.

In the near term, not much will change as the industry learns to deal with the new rules moving forward. But I do expect that buying a home will become more expensive while selling a home will become less expensive. Some argue home prices will drop and others that this system means licensees will make less money on the transaction. I believe other factors such as limited supply of homes and the interest rates will be mitigating factors. Nonetheless, buyers and sellers will need to learn the nuances of all the fees they pay in buying and selling their homes.

My advice to all my clients — buyers and sellers — is the same as it has always been: Make sure you interview real estate licensees to determine can successfully work with them on a complex transaction. This purchase for most people is the largest single transaction in their lives. A thorough understanding of the service you will obtain, and the fees involved for those services is most important. 

Margaret Nelson is a real estate investor and broker/owner of Denali Real Estate headquartered in Anchorage. She has more than 30 years’ experience in residential and commercial real estate and property management.