New commission rules are supposed to benefit buyers and sellers, but here’s what to consider before taking out a home loan.
A new real estate commission rule went into effect on August 17, 2024, and it’s great news if you’re selling your home.
Previously, real estate agents were paid about 5% to 6% by the seller of a home. That commission was split between the realtor selling your home and the realtor of the buyer. That meant buyers were off the hook for these fees. Plus, buyers could partner with an agent to see homes during the buying process as often as they’d like without any costs.
Under the new rules, sellers no longer have to offer to cover the costs of the buyer’s agent. Instead, sellers have more negotiation power about how much or if at all they plan to offer a buyer’s realtor. Buyers now have to sign a written agreement with their broker about how much the realtor can expect to receive before viewing any homes privately.
But how does this affect home loans? Here are three considerations for those seeking a home loan with these new rules in mind.
1. Buyers can’t finance realtor commissions
This isn’t new news, but Fannie Mae and Freddie Mac, companies that guarantee most of the mortgages in the US, do not allow commissions to be added to the balance of the mortgage. Home buyers paying commission can’t bake the additional costs into their home loan, which means you’ll need more money up front.
For example, if you’re a buyer who ends up having to pay your realtor in full for commission, meaning the seller didn’t contribute to your agent’s commission at all, you’ll have to come up with that money on your own. Let’s say your agreement with your realtor is 3% of the $400,000 purchase price, that’s $12,000 more you’ll have to come up with out of pocket.
It’s unclear if or when laws surrounding commissions being included in mortgages will ever be a thing, despite changes to real estate commissions.
2. Lower pre-approvals for some buyers
Preapprovals carry a lot of weight when you’re shopping for a home. To get preapproved, lenders look at your bank accounts and assets to be sure you have the funds to cover down payments, closing costs and reserves. You’re approved for an amount that the lender can be sure you can afford.
Under the new real estate rules, buyers will likely be picking up some of the tab on their realtor’s commissions. Having more of your funds tied up in the home-buying process could mean missing out on some properties, being overextended or simply just not being able to afford what you could before.
3. Sellers turned buyers may have more money for down payments (and buyer agent costs)
Commission negotiation is in the hands of the seller now. Whether you decide to pay 3% toward the buyer’s agent or 0% is between you and your realtor. Under the old rules, if you were selling your home for $500,000, at a 6% commission rate that’s a whopping $30,000 in commission due at closing.
Now, sellers could technically decide to pay a flat fee toward the buyer’s agent, a lower percentage or nothing at all. Using the same example, a seller wanting to be completely off the hook could decide to pay $0 toward the buyer’s agent, saving them nearly $15,000.
So, if you’re selling your home and buying another — that’s a pretty penny back in your pocket for a preapproval or toward a down payment to cut down on the cost of your home loan.
But as mentioned, a seller turned buyer means you too may be on the hook for paying the realtor helping you buy your home.
Wrap up
We don’t yet know how real estate commission changes will shake out in the industry until more time passes. And while changes are meant to benefit both buyers and sellers, who really benefits is yet to be seen. Some speculate buyers could face more challenges with upfront cash or a lack of representation if they can’t afford to pay realtor fees.
The most surefire way to lower your home loan costs hasn’t changed and may be even more important amidst extra fees — compare several mortgage lenders when shopping for a home loan. Even a half-point difference in interest rates could significantly impact what you can afford and how much you’ll pay over the life of your loan.
