Fact Check: Do People On The Market To Buy A Home Have To Sign An Agreement With A Real Estate Agent First?

Buyers should only work with agents who provide written agreements.

Changes are underway for people on the market to buy a home with a real estate agent. Beginning as early as August 17, potential home buyers must enter a written agreement with an agent before touring a home.

The changes are part of a settlement agreement following the federal class-action lawsuit Burnett v. National Association of Realtors (NAR) et al. NAR is a trade association with more than 1.5 million members working in the real estate industry who subscribe to a strict code of ethics.

Buying a home is a complex process, which is likely why more than 86% of Americans use a real estate agent or broker to navigate the confusion. When homebuyers work with an agent, the agent usually collects a percentage of the final sale. Traditionally, the commission is anywhere between 5-6%. Both parties (buyer and seller) can see this commission on the settlement statement they receive from the closing agent or attorney. While this payment arrangement has been used for the last several decades, the plaintiffs argued are paying a portion of the buyer’s agent commission and don’t know. The plaintiffs also argue because of this scheme, NAR inflated home prices.

On October 31, 2023, a federal jury sided with the plaintiffs against NAR and several other large real estate brokers. They agreed to pay $418 million in damages and make some changes in their practices related to commission transparency. As a result, potential buyers must enter into a written agreement with an agent outlining how commissions are paid.

So, What Does This Mean For Buyers and Sellers?

Through the written agreement there will be transparency around compensation between real estate professionals and consumers, specifically buyers.

“There has always been a mandate for sellers to have an agreement, but there has not been one for buyers,” Nate Johnson, a St. Louis Realtor for more than 25 years, tells BLACK ENTERPRISE. “Historically, buyers have not always been aware of how much the agent they’re working with is getting paid, yet the buyer is basically paying [the commission] through the price of the home. It’s the listing agent, the person whom the seller hires, who has historically determined what that buyer agent will earn.”

With the changes, the buyer and the buyer’s agents now decide the compensation the agent will receive.

“In most cases, the agent is going to make their best effort to collect that fee from the seller of the home. In the event that the seller is not willing to pay that compensation, then the buyer would be responsible for it,” says Johnson. “The buyer could request the seller pay for that compensation through the written agreement through the sale contract.”

According to Johnson, the written agreement details what services the buyer will receive from their representative in addition to agent compensation.

Why Buyers Should Only Work With Agents Who Provide Written Agreements

Buyers should know that agents who don’t provide written agreements are in violation of the new rules. “Working with an agent without that agreement is a big red flag. You should be in that agreement prior to viewing homes,” Johnson says.

He adds that buyers, especially first-time homeowners, should not be deterred from working with an agent because of the rule changes. These types of agreements have always existed. The changes mean that every agent is required to have one.

“Homebuyers may opt not to be represented and purchase a home without the assistance of a Realtor or an agent because they fear they will have to pay for that compensation, and they need all the money for the downpayment or closing costs,” Johnson says.

He adds, “A big concern we have in the industry is that most homebuyers don’t know what they don’t know, especially first-time homebuyers. Going on it alone without representation could mean setting yourself up for disaster because they are then relying on the agent who’s representing the seller.”