New Commission Laws in CA Real Estate

Check out the FAQ's below about the new commision laws affecting California Real Estate. As always, if you have any questions I am always available to help.

Q: What are the new commission laws in California for real estate agents? Should I be concerned or will I be affected as a client?

A: California recently implemented significant changes to real estate commission laws that may impact both buyers and sellers. Historically, sellers typically paid the commission for both their listing agent and the buyer’s agent. However, the new rules, effective August 2024, have changed this structure.

Now, buyer's agents’ commissions must be negotiated at the time the offer is submitted, and buyers might be responsible for paying their agents directly. While this means more transparency, it also means that buyers need to be more involved in the negotiation process from the outset.

As a client, there’s no need for immediate concern, but it’s important to be aware of how these changes could affect your financial planning. For example, buyers might need to account for their agent’s commission in addition to other closing costs, which could impact their overall budget. Sellers, on the other hand, might use commission offerings as a negotiation tool to make their listings more attractive.

Overall, working with a knowledgeable real estate agent who understands these new rules can help you navigate the changes and make informed decisions.

If you’d like to dive deeper into the specifics of these changes and how they might affect your real estate transactions, feel free to ask!

Q: What are the potential benefits?

A: The recent changes to real estate commission laws in California offer several benefits to both buyers and sellers, primarily through increased transparency and flexibility.

For Buyers:

1. Transparency: Buyers now have a clearer understanding of how much they are paying for their agent’s services, as commissions must be explicitly negotiated and disclosed upfront. This transparency ensures that buyers know exactly where their money is going, helping them make more informed decisions​

   
   

2. Negotiation Power: With the new rules, buyers have the ability to negotiate their agent’s commission directly. This can lead to potential savings, especially if the buyer feels the agent's services warrant a lower fee. Additionally, buyers can request that the seller cover some or all of these costs as part of the negotiation process​

   
   

3. Choice and Customization: Buyers can now choose how they compensate their agents, whether through a percentage of the purchase price, a flat fee, or even an hourly rate. This flexibility allows buyers to tailor their agreements to their specific needs and financial situation​.

   
   

For Sellers:

1. Competitive Edge: Sellers can use commission offerings as a tool to make their property more attractive in the market. By offering to cover a portion or all of the buyer’s agent’s commission, they might appeal to a broader range of buyers, potentially leading to quicker sales or better offers​

   
   

2. Cost Control: Sellers now have more control over their transaction costs. By negotiating agent commissions directly with the buyer, they can better manage their expenses and adjust their pricing strategies accordingly​

   
   

Overall Market Impact:

These changes encourage a more competitive and consumer-friendly real estate market, where buyers and sellers can negotiate terms that best suit their needs. This shift could lead to more efficient transactions and potentially lower overall costs for consumers.

If you have more questions or want to know how these benefits could specifically apply to your situation, feel free to ask!

Q: Are fees negotiable?

A: Yes, you can definitely negotiate real estate fees under the new commission rules in California. Here’s how it works:

For Buyers:

• Agent Commission: The commission you pay to your buyer’s agent is now more flexible and negotiable. You can discuss different compensation structures, such as a flat fee, a percentage of the purchase price, or even an hourly rate for their services

• Seller Contributions: You can also negotiate with the seller to cover part or all of the buyer’s agent's fees. This can be included as part of your offer, potentially reducing your out-of-pocket expenses​
  

For Sellers:

• Listing Agent Commission: As a seller, you can negotiate the commission with your listing agent, just as you could before. However, you now also have more flexibility in how you handle the buyer’s agent commission. This can be used as a bargaining tool to make your property more appealing to potential buyers

  
  

Benefits of Negotiating:

• Cost Savings: Negotiating fees can lead to significant savings, especially for buyers who may have limited budgets.

• Customized Services: You can tailor the compensation to match the level of service you require, ensuring that you’re only paying for what you need.

• Market Advantage: For sellers, offering competitive commissions can make your listing more attractive, potentially speeding up the sale process.

Overall, negotiating fees is a key advantage of the new commission structure, giving both buyers and sellers more control over their real estate transactions.

Q: Are there any risks?

A: While the new commission laws in California offer benefits, there are also some risks to be aware of:

1. Increased Costs for Buyers:

• Direct Payment Responsibility: Buyers might now have to pay their agent’s commission out of pocket rather than having it covered by the seller. This could increase the upfront costs, which might strain budgets, especially for first-time buyers or those with limited funds​

• Impact on Buying Power: Allocating funds to pay for the buyer’s agent might reduce the amount of money buyers can put toward their down payment or other purchasing costs, potentially affecting the overall affordability of the home​

2. Complex Negotiations:

• More Complicated Transactions: The need to negotiate commissions directly between buyers and sellers can add complexity to the transaction. Buyers might find themselves in a weaker bargaining position if sellers are unwilling to cover the agent’s fee​

• Potential for Misunderstanding: With more negotiation points, there’s an increased risk of misunderstandings or disputes over who pays what, which could delay the transaction or even cause deals to fall through

3. Reduced Incentives for Agents:

• Less Motivation: If buyers are unwilling or unable to pay competitive commissions, agents might be less motivated to represent them, particularly in a competitive market where higher commissions can be earned elsewhere. This could potentially lead to fewer available agents or a lower level of service​

4. Market Inequities:

• Disadvantages for Certain Buyers: Buyers with fewer resources, such as those in lower-income brackets or minorities, might be disproportionately affected by the need to pay their agent directly. This could widen the gap in homeownership opportunities, making it harder for these groups to compete in the market​

  
  

5. Potential for Market Disruption:

• Uncertain Market Impact: These changes are relatively new, and the long-term effects on the real estate market are still uncertain. There could be unintended consequences, such as reduced market liquidity or shifts in how properties are marketed and sold​.

  
  

While these risks don't necessarily mean you should avoid buying or selling property, they do highlight the importance of working with an experienced real estate agent who understands the new rules and can help you navigate these potential challenges.

Q: Can you sum everything up?

A: The recent changes to California's real estate commission laws bring a new level of transparency and flexibility to the buying and selling process, and Kriegel Real Estate is well-prepared to help you navigate these updates with confidence.

Under the new laws, buyers now have more control over how they compensate their agents, providing the opportunity to negotiate fees that suit their budget and needs. Sellers, too, can use commission offerings strategically, enhancing the appeal of their properties. These reforms create a fairer and more competitive marketplace, ultimately benefiting both buyers and sellers.

At Kriegel Real Estate, we’re fully up-to-date on these changes and committed to guiding our clients through seamless and successful transactions. Whether you're buying or selling, you can trust that we’ll provide the expertise and personalized support you need. With over 20 years of experience, we're here to ensure that your real estate journey is as smooth and rewarding as possible. Rest assured, you're in good hands with us!