What the NAR Real Estate Commission Settlement Means to You
Category: Real Estate Listings
April 9, 2024 — A recent settlement by the National Association of Realtors could mean big changes and possible savings for people buying and selling real estate. In it, the NAR agreed to pay $418 million over 4 years to settle claims that their agents’ commissions were too high. Anyone interested in buying a home for retirement, or in selling their existing home, needs to be aware of how this settlement has forever changed the world of real estate.
The case affects the way real estate agents get paid commissions. The main issue in the lawsuits was something called “tying.” That was a practice where NAR members required that buyers’ agent commissions were set by the seller’s agent – at the time a home was listed. Typically there is a commission (usually 2.5 – 3% but sometimes negotiated downward) of the sales price paid to the seller’s agent, and another commission (again, usually 2.5 to 3% ) for the buyer’s agent. Normally all of that money was taken from the sales price of the home and then distributed to each agent. These commissions, prior to the court ruling, were pretty automatic. Now, it is not so simple.
The buyer side commission seems to be the one most affected by these changes. One big change is that buyers now have to have a signed agreement with their agent, which specifies, among other things, what the commission will be. Agents do not have to subscribe to the MLS listings, which do not have to specify what the compensation will be. The idea there is to avoid discrimination against properties with different commission rates.
What the future will bring?
No one is sure yet how all of these changes will shake out in the future. Here are some good bets, according to industry professionals:
- Commission rates will probably come down
- Buyers and sellers will negotiate agent compensation separately
- Buyers might have to pay their agent out of pocket
- Commission rates might evolve to different models, including referral fees
- Some agents might leave the business
How will this affect retirees?
Tim Boyd of Sotheby’s International has this advice retirees who are selling. “The time is right! the current market for inventory is down 75% from 2019. The already inflated home values since the pandemic should continue to rise as the supply and demand ratio continues encourage the fierce competition amongst buyers. Soon you should be able to negotiate a lower commission arrangement. Sellers will not be required to compensate buyer’s under the terms of the new purchase contract. Sellers may choose to, based on conflict of interest concerns, or even come up with a hybrid
accommodation.”
It’s complicated and evolving
The settlement will probably make buying or selling your home more transparent than it was before. You will sign an agreement with your agent and know in advance what he or she will be paid – no surprises at closing. The days of a fixed 2.5 or 3% commission might be over. Whatever amount a seller agrees to share in buy side commission must be made by private agreement between buyer and seller. That is important, because it is possible that if you are buying, you could end up paying the buyers’ commission out of your pocket. But the dust has hardly settled on this news, so no one really knows how this is going to play out. The best advice we have heard is to get a reputable and experienced agent to represent your interests.
Predictions from a Real Estate Professional.
Tim Boyd provided these predictions “… fewer buyers will agree to be represented (in the future). Those that choose representation will likely try to get a cost savings hybrid arrangement between the seller’s agent, their agent and themselves. Buyers are going to pay more… sellers likely to pay less. Listings will be gold in this tight market.”
What if you don’t have an agent?
People who sell their home themselves give up services like advertising, MLS, and advice, but don’t have to pay a commission on the seller side. But if the buyer has an agent, someone will have to pay that commission. That depends on what you negotiate with the buyer, and any commission agreement they might have.
Tim Boyd of Sotheby’s International
Tim has been a top agent since 2010, after a successful career managing a family business. He specializes in the Shoreline area of Connecticut east of New Haven.
Comments? What is your prediction about how the NAR settlement will change the real estate market? Please share them in the Comments section below.
Comments on "What the NAR Real Estate Commission Settlement Means to You"
Admin says:
I don't think many people realize what a game changer this agreement brings. The real estate people I have been talking with are nervous that it could cut into their income. Buyers and sellers have to be alert, because they now have more negotiating power than ever before - IF they take advantage.
Daryl says:
Great, one more thing I have to negotiate. I don’t even like buying a car. Doesn’t this just take the lid off the 6% rate? The best, most experienced and aggressive realtors will demand more. Homes, cars, Amazon, even surge pricing for lunch. It’s exhausting.
JCarol says:
I'm delighted at the change and expect it will make room for a new real estate transaction category: Experts who'll guide sellers through the process, put homes on the multiple listings, taking photos, etc, on an a la carte basis. (Maybe hourly rates for photographing.) Flat rate pricing, no more percentages of selling price. Ditto for buyers.
A suburban home in So Cal that goes for $1.2 million is no harder to buy or sell than a suburban home elsewhere @ $400K. Probably easier. Houses in my neighborhood sell in 7 days or less, virtually always for asking price or above. Why should my buyer and I pay 3X what a seller & buyer pays for a $400K sale? We're talking $72K @6%. Outrageous!
Real estate pricing has been an overpriced racket for decades and many are eager for it to come to an halt. Admin: it's no wonder the R.E. folks you've spoken with are nervous about their income. They can see an end coming to their gravy train.
Mind you, I have no problem paying fair rates for good work. But I chafe at being ripped off when an industry institutes a "standard practice" that benefits them mightily.
RichPB says:
JCarol's argument is legitimate and reasonable. Having just last year bought and sold with an over 300K difference in price between the two, that x% is what!? Fortunately, our realtor was fair and reasonable handling the sale and herself cut that percentage to begin.
MBP says:
We are thinking of listing our house after June, around the timeframe I think NAR lawsuit starts to take effect. We have been talking to many realtors in the state we are hoping to move to and at home. All of them have been really firm that they will be charging a 3% commission and offer really nothing different with their services (some really dont tell us either what they will do for us). I find it interesting that all of them we have talked to are not up for negotiation. I really hope this changes when the lawsuite takes effect. I have never paid 6% commission as a whole and that will happen if a seller refuses to pay for the buyer's commission. We go back and forth with selling our home ourselves but I don't think we really want the headache. Then on the other side of this; is trying to find a buyers agents in another state. I don't think many real estate agents like being dual agents but then again I hope that this will be a positive change
Steve T says:
My opinion is that sellers will pay the same as always or possibly a little less in total commissions and buyers will end up paying more in commissions. The realtors collectively will end up making more in commissions, especially the unscrupulous realtors. In short, the suit results will benefit realtors and work to the detriment of buyers and sellers of homes.
Staci says:
We spoke with a realtor last week about possibly listing our home in PA. She has charged 5% commission to the sellers with 2 1/2 % going to the buyers agent. She said will continue to charge the sellers 2 1/2 %, what percentage sellers want to pay the buyers agent can and will vary with some sellers offering nothing at all. She stated that many buyers can’t afford to pay a commission after down payments and closing costs. It will be interesting to see how this ultimately plays out. It makes operations like Redfin which just charge both parties I believe, a fixed fee, a consideration in these confusing times. Anyone with experience with this or similar alternatives??
Daryl says:
Ok, I’m starting to see why realtors want commission restrictions lifted. When we sold my parents’ house our realtor busted his butt helping us get it sales-ready, and it sold for the price we requested. He got us 30% more than the first realtor we interviewed predicted, who had a lackluster attitude. I think our guy worked harder and deserved more than contestant #1. Do buyer’s agents work as hard for their clients?
Larry says:
I have been researching the NAR settlement and its possible consequences for the last month in preparation for a deep dive article in my newsletter, Home On The Course, in early May. I am a licensed real estate agent in CT who works with buyers to find homes in golf course communities in the Southeast U.S. In the last dozen years, none of my clients has ever paid a buyer's agent for his/her services. Those were always paid from the seller's commission payment to the listing agency (generally 6%). When I first sat for my license, the first surprising thing I learned was that ALL commission rates are negotiable; that is, a seller was never required to pay 6%. Many sellers and most buyers did not realize that. They will now, with the NAR settlement. Things will begin to shake out after July, when the court formally approves the settlement whose main provisions eliminate buyer commissions coming from the seller's commission payment and prohibit local MLS (multiple listings services) from publishing what buyers' agencies will be paid if they bring the eventual buyer to the table. In short, everything is negotiable after July. Here is what I believe is likely to happen: Listing agencies will attempt to convince sellers that they should pay more than 3% commissions -- half the original 6% -- in order to market their homes properly to potential buyers and their agents. (Note: Sellers' agencies will be able to publish a buyer commission rate on their own websites, just not on the local MLS.) Sellers will become tougher negotiators and will settle generally for a rate somewhere between 3% and 5%; the excess above 3% will be used to lure and compensate buyers' agents. Buyers will be asked/required by buyer agencies to pay either a percent of the sale price or a flat fee for services (finding a local closing lawyer, handling paperwork, showing houses that match the buyers' criteria). Buyer agents will need to use communication skills they have not used before; many will not be up to it and will leave the industry. (To butcher a famous G.B. Shaw line about teachers, "He who can does; he who cannot sells real estate.") That will ultimately benefit the industry -- far more than the National Association of Realtors has. The answer to Daryl's question "Do buyers agents work as hard for their clients?" is "They better."
Admin says:
Thanks Larry for your insights on this complex new development. Anyone buying or selling a home from now on needs to be aware of what is going on. Love the answer to Daryl's question!
Admin says:
I am really worried about what’s coming around the pike. No one is sure on how this is going to shake out just yet.. I have attended classes and meetings and I think this is going to really damage the industry. Why they went after REALTORs is beyond me. What about doctors, lawyers and the financial world that set fees all the time.. I’m just saying.
Yolande says:
Wow, this is really scary for me as a buyer. I find Realtors to not be all that great anyway unless you find one that loves their job. That's not easy to do. I know a small handful. I wonder how they'll fair in this industry. Now as a buyer with nothing to sell I'm going to be really wary of any agent. Great and informative warning article.