This March, the National Association of Realtors reached a legal settlement of $418 million, resolving lawsuits regarding broker commission payments in residential real estate sales.
As a result of the settlement, in Illinois, changes in the commission structure were put in place a few weeks ago with local industry groups announcing what the changes mean for buyers.
Illinois Realtors® announced that the rules that took effect Aug. 17 include:
- Homebuyers working with Realtors® will be required to sign a written agreement detailing the work the broker will do for them, the rate of compensation and how it will be paid.
- Real estate agents will stop including shared compensation information on the MLS. Instead, brokers must communicate this information, in writing, privately or on their own websites. The amount of compensation will remain negotiable.
The changes have been in effect for a little more than a month, but local real estate experts say there are some immediate changes in their practices.
The most obvious change is that real estate agents working with buyers are now required to have the buyers sign a written representation agreement before permitting a buyer to tour a property in person or virtually.
Oak Park-based John Lawrence, Vice President and Designated Managing Broker of Berkshire Hathway HomeServices Chicago said the written agreement is not a new practice for BHHS agents.
“We have always taught our agents to use a written buyer’s agreement because Illinois license law requires all exclusive agency agreements to be in writing. We also feel that agency agreements are important for creating transparency for the consumer and are important in building professional relationships,” Lawrence said.
Laura Ellis, chief strategy office and president of residential sales for Baird and Warner, added: “We’ve always encouraged a buyer agency agreement. Now it’s mandatory. Buyers have to sign it before they can tour a home.”
Monica Dalton of Compass said it has always been her practice to use a buyer’s agreement with clients, but noted that in light of the NAR settlement, her agency created a firm-wide agreement for all agents to use.
Spelling out compensation and duties
Lawrence, Ellis and Dalton all said that while different agencies use different language for buyer’s agreements, the agreements must include language explaining the duties of the agent, a termination date and an outline of compensation for the agent and how that compensation works.
Commission fees remain negotiable.
“The compensation that brokerages and agents charge is fully negotiable between the two parties and can take on a variety of forms,” Lawrence said. “There is no one-size-fits-all when it comes to compensation.”
At Baird and Warner, Ellis said the brokerage sets a minimum amount of compensation, and agents are free to tailor compensation above that amount.
Dalton said her commission rate is up to her.
“Our brokerage allows agents to negotiate their compensation directly with clients,” she said. “Agents determine what they believe is fair based on the services they provide.”
Although it is typical for the buyer’s agent compensation to remain a percentage of the sales price of the property, that is not written in stone.
“Right now, our agreements are all based on a percentage of sales price,” Ellis said. “We have not done any flat fees yet, but that doesn’t mean we won’t.”
Dalton said that buyers and their agent can negotiate a percentage commission rate or a flat fee depending on the work the buyer’s agent does, but she emphasized that while buyers might negotiate a lower rate for fewer services, agents have to abide by the Illinois Real Estate License Act and provide “minimum services” for clients.
“As a full-service broker, I find it difficult to consider doing only part of my job,” she said. “Real estate is more than just showing properties—it’s about being deeply knowledgeable about the local market on a daily basis, guiding clients through the entire process, and ensuring they make informed decisions. Our job has many layers, from explaining contracts to negotiating contract terms, helping buyers navigate multiple offers, connecting with lenders, and working with inspectors and attorneys. I can’t imagine saying, ‘You’re not paying for this part, so I can’t help you.’”
Who is paying commissions?
Prior to the NAR settlement, real estate agents were typically paid from the proceeds of the sale of the property, by the seller of the property. All three agents said this practice is continuing.
“What we are seeing now is many buyers are building compensation into their offer and are asking the seller to pay,” Lawrence said. “As long as the property appraises at the purchase price, it will allow the buyer to essentially roll the cost of representation into the loan.”
While stressing that the settlement has been in place for only a month, Ellis said that in her experience, almost 100% of buyers are asking sellers to pay the buyer’s agent.
“Prior to the settlement, the commission was paid for through the transaction and it continues to be so,” she said. “You just have to have a conversation about it. The buyer knows the services are not for free.”
In the weeks since the settlement has taken effect, Ellis said that she has seen seller’s agents charging a bit more than they did before the settlement, and buyer’s agents charging about the same.
While emphasizing the new rules have only been in effect a few weeks, she added, “It was a fallacy that home prices would fall because of the settlement. Housing prices are determined by supply and demand.”
She noted that both buyers and sellers want representation and that it is vital in places like Illinois where prices are going up and home inventory is low.
Looking ahead
Ellis said shethinks that the NAR settlement is only the beginning of more changes to come.
“To boil it down, it’s going to be a little bit of the Wild West. It’s going to be a bumpy ride.”
She added that she thinks the changes will cause a shake up in the industry, as well.
“I’m in the camp that there will be fewer agents, but they’ll be better agents.”
These changes will end up benefitting the industry, buyers and sellers.
“I’m really positive about the future,” Ellis said.