So long, 6% commission.
For decades, real estate commissions have been somewhat standardized, with most home sellers paying 5% to 6% commission to cover both the listing agent and the buyer’s agent.
On Friday, everything changed.
A landmark agreement from the National Assn. of Realtors paved the way for a new set of rules that will probably shake up the entire industry, affecting sellers, buyers and the agents tasked with pushing deals across the finish line.
The most pivotal rule change pertains to how buyers’ agents are paid. Traditionally, home sellers have paid for the commission of both their agent and the buyer’s agent, which critics argue stifled competition and drove up home prices.
The new rule prohibits most listings from saying how much buyers’ agents are paid, removing the assumption that sellers are on the hook for paying both agents.
The other new rule requires buyers’ agents to enter into written agreements with their clients, known as buyer brokerage agreements. These agreements outline exactly what services will be provided — and for how much.
The changes will take effect this July, pending court approval, and will have major implications on how real estate deals are done. Here’s how buyers, sellers and brokers will probably be affected.
Lower fees for sellers
The most obvious takeaway is that if buyers end up paying for their real estate agents instead of sellers, sellers are set to save a lot of money.
In February, the average Southern California home sold for $842,997. Under the old system, where sellers pay both agents 3% commission, they’d shell out $50,580. But if they only have to pay one agent 3%, they’d save $25,290.
Buyers, then, would be the ones footing the bill for their agent. The added expense might seem pricey, but Michael Copeland, a real estate agent in Palm Springs, said the final numbers might ultimately shake out the same under the new rules.
“Buyers were often told by their agents that they didn’t have to pay anything and that services were free,” Copeland said. “But that’s not necessarily true.”
Copeland said when sellers pay 6% commission to split between both agents, they pad that number into the purchase price, so buyers actually end up paying more for the home, and thus, pay for their own agent.
So under the new system, buyers may end up paying their broker 3% commission, but the price of the home might be cheaper since the seller is only paying for their own agent.
More flexibility for buyers
One of the biggest complaints about the previous system was that it left buyers out of the negotiation process. Sellers paid each agent’s brokerage 3% or so, and that was that.
Lawsuits filed against the National Assn. of Realtors alleged that the practice kept commissions artificially high and incentivized buyers’ agents to “steer” them toward properties that offered them higher commission rates.
But under the new system, more buyers will be negotiating directly with their own agents — not just how much they’ll pay them, but what services they want the agent to provide. And those expectations will be specifically outlined in the buyer brokerage agreements, which are now required.
“Some buyers may just hire an attorney and pay a fee to handle the transaction,” Copeland said. “Or they’ll want to hire an agent as a consultant. Someone they can ask questions.”
In the age of the internet, access to real estate information is at an all-time high. Buyers can know virtually anything about a home on the market: not just bedrooms, bathrooms and square footage, but how much the home previously sold for, and how much similar homes in the area are selling for.
Buyers can also receive alerts to know exactly when a house in their price range hits the market, so some savvy shoppers might opt for an agent who leaves the touring process to them, but can help them look over an inspection report and file the right paperwork in the closing stages of the deal.
If a buyer wants a robust, hands-on agent that’s available 24/7, they can offer 3% or even more. If they want an agent who can just handle the more technical elements of the deal, they could offer 1% or 2%.
Some buyers might try to handle the process themselves and not pay an agent at all.
“Good agents will be able to show their value,” said Compass agent Michael Khorshidi. “Agents who aren’t able to show their value won’t benefit from this.”
New dynamics — and roles — for agents
For many agents, representing buyers can be rewarding since they get to help someone find their dream home, but the process is often more time-intensive. Agents might spend weeks or months setting up tours for clients, and there’s no guarantee that they’ll even buy a property in the end.
For that reason, many veteran agents prefer to represent sellers. The work is often more efficient — especially in a hot market, where deals can close in days.
So if the new rules leave less guaranteed money on the table for buyers’ agents, those agents might try to switch sides and only represent sellers. Or if they’re not able to make enough money representing buyers, they might exit the industry altogether — a trend that’s already taking place in Southern California’s cold post-pandemic real estate market.
Brent Chang, a luxury agent active in San Marino and Pasadena, said the new rules could lead to agents who specialize in specific types of sales.
“Just as there are agents like me who specialize in selling landmark properties, a new group of agents will emerge who specialize in helping buyers with highly competitive properties,” Chang said.
He said agents who have a proven track record of winning properties for their clients will be able to demand higher commissions.
Or their deals can be performance based. For example, an agent could represent you for 3%, and if they get the property for you, it’s another 3%.
“Ultimately, if the ruling leads to buyers receiving better service from their agents, then it has merit,” he said. “But I suspect it’ll be a while until we understand the consequences of these changes.”
The digital consultancy Bounteous is merging with Accolite Digital, and together they plan to become a billion-dollar company in five years.
Bounteous and Accolite Digital offer different, yet complementary services. The private equity firm New Mountain Capital, which invested in both companies in 2021, instigated the idea for this merger late last year.
Bounteous, a Chicago-based consultancy, mostly works with chief marketing officers in North America and designs customer-facing experiences. Its clients include Coca-Cola, Caesars Entertainment, Domino’s, and others, and it largely competes with other consultancies like Accenture and Deloitte Digital, Bounteous CEO Keith Schwartz told Business Insider.
Accolite, based in Dallas, builds products that large enterprises use internally. For instance, it built a wearable device for FedEx that detected fatigue among drivers and pilots and ran predictive analytics to identify potential accidents, Accolite CEO Leela Kaza told Business Insider. FedEx used this data to make pilots’ schedules and truck drivers’ routes more efficient, and now licenses that software to other carriers, Kaza said.
Accolite’s clients include telecommunications and financial services companies, including Goldman Sachs, Prudential, and BT. It mostly works in India, but it also has presences in the US, Canada, Mexico, and Europe.
The decision to merge happened when New Mountain noticed that Accolite clients would ask for design services that are Bounteous’ expertise, and Bounteous clients would ask for help with their cloud infrastructure and data analytics, which is Accolite’s focus, said New Mountain managing director Prasad Chintamaneni.
The combined firm will have 5,000 people and be headquartered in Chicago. Schwartz and Kaza will both lead the combined company. For now, the merged company will be called Bounteous X Accolite, although Kaza said they will finalize its new name in May.
Kaza will oversee areas like human resources and operations, and Schwartz will oversee sales, marketing, and finance. The companies will have minimal layoffs post-merger, Kaza said, though there will be some redundancies in support functions.
“I look at all sorts of mergers and possibilities, and sometimes there’s a tremendous amount of overlap,” said Schwartz. “In this case, there’s a tremendous amount of white space.”
The road to $1 billion
The two companies’ combined revenue is nearing half a billion, and they have big plans to hit the billion-dollar mark in about five years.
To get there, Bounteous X Accolite is banking on 2024 as a year of modest growth, with real acceleration in 2025 and 2026, said Kaza.
“That’s when you’re going to start heading towards that billion-dollar figure,” Kaza said.
The company will then supplement its projected organic revenue growth with M&A, looking for “strong firms” that can work with marketing tech from Salesforce and Adobe in regions like Latin America and Eastern Europe, Kaza added.
“You do these things to make the company better, not bigger,” Schwartz said. “If you make the company better, clients reward you with more work, and you will grow.”