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Will new real estate commission rules make homes cheaper—or more expensive—for SF buyers?

Homesellers will no longer be obligated to pay for all real estate agent fees, meaning first-time buyers might have to find some extra cash.

Row of colorful townhouses on a steep street with a person walking and clear skies.
Changing rules may raise the cost of buying a home. | Source: Jason Henry for The Standard

The already exorbitant cost of purchasing a new home in San Francisco may get even higher for first-time buyers thanks to new commission rules due to go into effect this summer. 

Last week, a $418 million settlement agreement by the National Association of Realtors radically reshaped a key part of how homes will trade hands in the U.S. Soon, sellers will no longer have to pay commission fees to both buying and listing real estate agents involved in brokering the deal. 

But what’s good for sellers may turn out to be bad for buyers, who will now possibly have to account for an expense they haven’t had to pay for in the past.

The powerful association, which sets guidelines for most home sales in the country, agreed to eliminate its rules on commissions, changing a decadeslong system that required homesellers to pay both buyer and seller commission fees. Pending court approval of the settlement, the new policy is set to take effect as early as July. 

Most experts agree that the settlement will be an immediate boon for homesellers. Even though broker commissions are technically negotiable, the norm has generally been 5% to 6% of the sale price. If a house is sold for $1.57 million today—the median price for a single-family home in San Francisco—the seller would have to pay around $95,000 in fees split between the buying and selling agents. With the new rules, half of that bill could be wiped away. 

“Sellers win off the bat because they no longer have to pay for something they weren’t really responsible for,” said Avil Soleiman, a Bay Area residential real estate agent for Compass. “But in real estate, everything is negotiable, and nothing is firm until it’s on paper.” 

Irrespective of new rules, buyers and sellers might still offer each other concessions to help move a sale along, said Soleiman. For example, in a slower market, sellers could offer to pay for some or all of their counterparts’ agent commissions, even if they’re no longer obligated to do so. 

That means home sales negotiations probably won’t shift dramatically overnight because demand still greatly outstrips supply in the region and consumers have more online research tools than ever, according to Danielle Lazier, a San Francisco real estate broker. 

Dense urban area with multi-story buildings on a sloping hill, under a clear sky.
In a languid housing market like San Francisco, don't be surprised if sellers continue footing the bill for real estate agents despite the impending rule change. | Source: Jason Henry for The Standard

While active listings in the country are the fewest they’ve been in over two decades, in large part due to high interest rates, the market in San Francisco is slowly thawing. According to data from Compass, new listings are up 11% compared with this time last year, and nearly half of home sales are still closing over list price.

Once the National Association of Realtors’ changes take effect this summer, listing agents will be prohibited from advertising commission rates on databases like the Multiple Listing Service—a tactic some have claimed led unscrupulous agents to steer buyers toward certain properties that led to a higher personal payout.

One potential improvement to transparency could be buyer-broker agency agreements—which explicitly outline agent responsibilities and fees upfront. Such contracts are mandated in places like Colorado, Virginia and other states, but not in California. 

An optimistic take from some observers is that stripping the fees from sellers could help move things along and mean more homes offered for sale at lower prices. On the other side of the coin, changes to the commission structure could lead to more homebuyers foregoing an agent altogether. 

But in a languid market like San Francisco, Lazier said it wouldn’t surprise her to see sellers continue to pay buyers’ commission fees as a way to move sales along. 

Ryan Lundquist, a residential appraiser in Sacramento, said it is too early to gauge the ultimate impact on home prices, but he anticipates some sellers might lower prices to make up for the new additional buyer burden.

“Most first-time buyers are already strapped [for cash],” Lundquist said. “Now they have to come to the table with more funds. 

“These days, buyers have been especially picky about price, location and condition,” he added. “This new lawsuit could help them become even more finicky.”