New Realities for Homebuyers Post Sitzer/Burnett Lawsuit

In the wake of the Sitzer/Burnett lawsuit, the real estate landscape is undergoing a significant transformation, particularly impacting how homebuyers handle agent commissions. Traditionally, home sellers covered the commission fees for both their listing agent and the buyer’s agent, effectively bundling these costs into the home’s sale price. However, the lawsuit’s outcome mandates that homebuyers now need to pay their agents directly, presenting new challenges and opportunities in the home buying process.

The Traditional Model 

Under the traditional model, sellers typically paid a combined commission fee—usually around 5-6% of the sale price—which was then commonly split between the listing agent and the buyer’s agent. This arrangement allowed buyers to use their savings for a down payment and other costs without needing to worry about additional out-of-pocket expenses for their agent’s services. But that will no longer be the case come August.

Challenges for Homebuyers

1. Increased Out-of-Pocket Expenses: The most immediate and significant challenge for buyers will be the need to pay their agent directly. This could range from 2.5% to 3% of the home’s purchase price. For example, on a $300,000 home, the commission could amount to $7,500 to $9,000, which must be paid upfront or at closing, in addition to the down payment and other closing costs. Realistically though, industry experts are saying that the amount buyers will be willing to pay is going to be less, and probably substantially less.
2. Financial Strain: Many buyers, especially first-time buyers, already struggle to save for a down payment. Adding the agent’s commission to their financial responsibilities can make homeownership feel even more unattainable. This change may require buyers to save more or adjust their budget significantly.
3. Market Accessibility: This shift may particularly impact those with limited financial resources, potentially delaying their ability to buy a home or forcing them to look at lower-priced properties to accommodate the added expense.

Strategic Solution for Buyers

Despite these challenges, there is a strategy buyers can employ to manage these new costs effectively:

Seller Concessions: One practical approach is to include the buyer agent’s commission in the offer through a seller concession. This means the buyer asks the seller to cover some or all of the agent’s commission as part of the deal. For instance, if a buyer is interested in a home listed at $300,000, they might offer $307,500 with the stipulation that the seller will pay the $7,500 commission fee. This method can help alleviate the immediate financial burden on the buyer.

Conclusion

The Sitzer/Burnett lawsuit has ushered in a new era for homebuyers, who must now directly pay their agents’ commissions. While this shift introduces new financial challenges, it also encourages buyers to be more strategic and proactive in their planning and negotiations. By understanding the implications of this change and leveraging strategies like seller concessions and careful budgeting, buyers can still navigate the path to homeownership successfully. This new model promotes greater transparency in real estate transactions, ultimately fostering a more competitive and equitable market.

Furthermore, buyers can and should be on the lookout for homes that don’t involve hefty seller commission fees, like for sale by owner or homes listed by discount brokerages like just990 (just990.com). When a seller is saving a substantial amount of money on commission, selling by owner, or utilizing a low commission brokerage, there is often a lot more “wiggle room” in the transaction for buyers to work creatively through the transaction to get their agent’s commission covered.