Rules for Working with Real Estate Agents
Essential guidelines to protect yourself and ensure a successful partnership with real estate agents.
Understanding the Rules for Working with Real Estate Agents
Working with a real estate agent can significantly simplify the process of buying or selling a property. However, to ensure a smooth and successful transaction, it’s important to understand the rules and guidelines that govern these professional relationships. Recent changes to the real estate industry have made it even more critical for buyers and sellers to know their rights and responsibilities when working with agents. Whether you’re a first-time homebuyer or an experienced investor, understanding these fundamental rules will help you navigate the real estate market more effectively and protect your interests throughout the transaction process.
The Evolution of Agent Commission Rules
The real estate industry has undergone significant changes in recent years, particularly regarding how agents are compensated and how their services are marketed. Following the landmark settlement in the Burnett v. National Association of Realtors case, several important rules have been implemented to provide greater transparency and control to homebuyers and sellers. These changes have fundamentally altered the way agent commissions are structured and negotiated, giving consumers more power in determining what they pay for agent services.
Traditionally, sellers set the commission rates for both the listing agent and the buyer’s agent. However, the new rules shift some of this responsibility to buyers, allowing them to have more direct input into what they pay for representation. Understanding these evolving rules is essential for anyone entering into a transaction with real estate professionals.
Key Rules for Buyer’s Agent Agreements
Written Agreements Are Standard
When working with a buyer’s agent, you’ll typically be asked to sign a written agreement that outlines the terms of your relationship. This agreement should clearly specify the compensation structure, the duration of the agreement, and the services the agent will provide. However, it’s important to know that you have flexibility in these arrangements. Many agents offer options such as signing an agreement for just one day, which allows you to test the working relationship before committing to a longer-term agreement. If you find that you don’t connect well with an agent, this flexibility means you can move on without being locked into an unfavorable arrangement.
Understanding Compensation Structures
Under the new rules, buyers no longer automatically have their agents’ commissions paid by sellers. Instead, you and your agent will negotiate how the agent will be compensated. Your contract should specify the exact commission percentage or flat fee you’ve agreed upon. Currently, most areas maintain a customary commission rate of 2.5% to 3% for each agent (both buyer’s and listing agents), but this is negotiable depending on market conditions and the complexity of the transaction.
The good news is that in most cases, you won’t need to pay your agent’s commission out of pocket. Instead, you can negotiate with the seller to include the buyer’s agent commission in your offer price. For example, if you’re paying a 2.5% commission on a $400,000 house ($10,000), you could offer the seller $410,000 on the condition that they pay your agent’s commission at closing. This arrangement works well with mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration.
Protecting Yourself from Conflicts of Interest
Identifying Potential Conflicts
One of the most important rules when working with real estate agents involves understanding and identifying potential conflicts of interest. Before signing an agreement with an agent, it’s crucial to ask whether the agent also represents sellers. Some agents work with both buyers and sellers, which can create situations where their interests may not be entirely aligned with yours. Additionally, even if your agent only represents buyers, you should ask whether your agent’s brokerage represents the seller in your transaction. If both agents work for the same brokerage, conflicts of interest could arise that affect your negotiating power.
The Exclusive Buyer’s Agent Advantage
To completely eliminate conflicts of interest, consider working with an exclusive buyer’s agent or broker. Exclusive buyer’s agents represent only buyers and do not work with sellers, which guarantees what professionals call “100% loyalty.” This arrangement ensures that your agent has no split allegiances and will always prioritize your interests above all else. While this may not always be necessary, it’s an excellent option if you want complete certainty that your agent is working solely for you.
The Role of Realtors vs. Non-Realtor Agents
You may wonder whether it matters whether your agent is a Realtor, which refers to membership in the National Association of Realtors (NAR). The answer is that you have the freedom to choose the best real estate agent for your needs, regardless of their professional affiliations. While most agents are Realtors and follow NAR’s code of ethics and standards, non-Realtor agents are equally valid choices. Both Realtors and non-Realtor agents are subject to the new settlement rules if they have access to the Multiple Listing Service (MLS), which is the database where properties for sale are listed.
Understanding Commission and MLS Changes
How the MLS Has Changed
A significant change under the new rules involves the Multiple Listing Service (MLS). Previously, the MLS contained fields visible only to agents (not consumers) that specified what commission percentage sellers were offering to buyer’s agents for each property. This information is no longer displayed on the MLS in the same way, removing the automatic commission offers that once guided buyer’s agent compensation. This change means that commission negotiations are now more transparent and direct between parties rather than being predetermined through the MLS system.
Negotiating Commission in Today’s Market
With commissions no longer automatically listed on the MLS, many buyers and sellers are likely to follow the path of least resistance and stick with their area’s customary commission rates. However, this doesn’t mean commission is non-negotiable. In fact, understanding that commissions are negotiable can help you potentially save money or secure better service terms. Always discuss commission openly with your agent and be clear about what services you expect in return.
Special Considerations for Different Loan Types
VA Loan Restrictions
If you’re a veteran using a VA loan, there are special rules you need to know about. Buyers with VA loans are not permitted to pay real estate agents directly out of pocket. Instead, veterans are encouraged to negotiate with the seller through the purchase offer, asking the seller to pay for the buyer’s agent or broker commission at closing. The VA is actively working with industry partners to ensure that veterans maintain equal footing in the homebuying process while complying with these restrictions.
Conventional and Government-Backed Loans
For buyers using conventional mortgages or loans backed by Fannie Mae, Freddie Mac, or the Federal Housing Administration, there is greater flexibility. These loan programs have indicated they’re comfortable with purchase offers that include compensation for the buyer’s agent, making it easier for buyers to negotiate this expense into their offer price rather than paying it separately.
Rules for Financial Management When Working with Agents
Understanding Agent Financial Practices
While working with real estate agents, it’s also important to understand that agents themselves must manage their finances effectively to provide you with quality service. Real estate agents face unique financial challenges due to variable income streams, and many top-producing agents struggle with money management. Understanding these challenges can help you work more effectively with your agent and recognize why they may have certain policies or requirements regarding earnest money or transaction timelines.
Banking and Account Management
Professional real estate agents maintain structured banking systems with separate accounts for different purposes, including business operations, tax payments, and investment savings. While this is an internal matter for your agent, knowing that professional agents maintain proper financial systems can help you identify which agents are running legitimate, well-organized businesses. Agents who manage their finances properly are typically better equipped to serve their clients effectively and maintain their business stability.
What to Expect from Your Agent
Professional Standards and Ethics
When working with a real estate agent, you should expect professional service in accordance with industry standards. Realtors must adhere to the National Association of Realtors’ Code of Ethics, which includes standards for honesty, integrity, and putting client interests first. Even non-Realtor agents should be knowledgeable, well-trained, and focused on your needs rather than maximizing their own commissions.
Communication and Availability
Your agent should be responsive to your questions, available to show properties on your schedule, and proactive in keeping you informed about market conditions and relevant listings. You have the right to expect regular communication regarding your transaction’s status and any issues that arise.
Questions to Ask Your Agent
Before Signing an Agreement
Before committing to work with an agent, ask these important questions:
- How much will you charge me for your services, and how is this amount calculated?
- Do you represent both buyers and sellers, or are you an exclusive buyer’s agent?
- Will you work with any sellers your brokerage represents, creating potential conflicts of interest?
- How long is this buyer’s agent agreement valid, and what happens if we don’t work well together?
- What specific services does your commission include?
- Are you a Realtor, and do you follow the NAR Code of Ethics?
- How will we handle the negotiation of my agent commission with the seller?
Red Flags and Warning Signs
Identifying Problematic Agents
Be cautious of agents who display these warning signs:
- Unwillingness to clearly explain their commission structure or fees
- Pressure to sign long-term agreements without flexibility
- Reluctance to disclose conflicts of interest or dual representation situations
- Lack of transparency about market conditions or property values
- More focused on their commission than on your needs and goals
- Poor communication or slow response times
- Inability or unwillingness to explain their professional qualifications
Your Rights as a Consumer
Negotiation Power
Remember that you have significant negotiating power when working with real estate agents. Commissions are negotiable, agreement terms are flexible, and you can choose from multiple agents. Don’t accept unfavorable terms simply because you think they’re standard—always ask questions and negotiate for arrangements that work best for your situation.
Termination Rights
You have the right to terminate your relationship with an agent if it’s not working out. While you may be bound by a written agreement, many agreements include provisions that allow for termination under certain circumstances. Always read your agreement carefully to understand your exit options.
Frequently Asked Questions (FAQs)
Q: Can I negotiate my agent’s commission?
A: Yes, agent commissions are negotiable. While 2.5% to 3% per agent is customary in many areas, you can discuss alternative arrangements with your agent based on the services provided and current market conditions.
Q: What if I don’t like my agent after signing an agreement?
A: Many agents offer flexible agreement options, including day-to-day agreements that expire at midnight if you’re unsatisfied. Discuss this flexibility before signing, and check your agreement for termination provisions.
Q: Do I have to use a Realtor?
A: No, you can work with either a Realtor or a non-Realtor agent. Choose the best agent for your needs, regardless of professional affiliations.
Q: How do I avoid conflicts of interest with my agent?
A: Ask your agent upfront whether they represent buyers exclusively or also work with sellers. Consider using an exclusive buyer’s agent for guaranteed loyalty.
Q: What are the special rules for VA loans?
A: Veterans with VA loans cannot pay agents directly. Instead, negotiate with the seller to pay your agent’s commission as part of the purchase offer.
Q: Will commissions appear on the MLS anymore?
A: No, under the new rules, buyer’s agent commissions are no longer listed on the MLS, giving you more direct control over negotiating these fees.
Q: Can I add my agent’s commission to my offer price?
A: Yes, you can typically offer a higher purchase price conditioned on the seller paying your agent’s commission at closing, though this doesn’t apply to VA loans.
Q: What should I look for in a qualified real estate agent?
A: Look for agents who are well-trained, knowledgeable about your local market, transparent about fees, and focused on your interests rather than maximizing their own commissions.
References
- Managing Money for Real Estate Agents – The 4 Keys — The Real Estate Trainer. 2024. https://therealestatetrainer.com/managing-money-for-real-estate-agents-the-4-keys/
- Advice for Working With a Home Buyer’s Agent — NerdWallet. 2024. https://www.nerdwallet.com/mortgages/news/working-with-buyers-agent-real-estate-settlement
- National Association of Realtors Code of Ethics and Standards of Practice — National Association of Realtors (NAR). 2024. https://www.nar.realtor/about-nar/governing-documents/code-of-ethics
- U.S. Department of Veterans Affairs – VA Loan Buyer Rights — U.S. Department of Veterans Affairs. 2024. https://www.va.gov/housing-assistance/
- Federal Housing Finance Agency – Mortgage Market Guide — Federal Housing Finance Agency (FHFA). 2024. https://www.fhfa.gov/
Similar Articles
Read full bio of Sneha Tete
