In March 2024, the National Association of Realtors (NAR) made headlines with a $418 million settlement after losing an antitrust lawsuit filed by a group of home sellers. This settlement could affect up to 50 million people who paid commissions on home sales in recent years, potentially giving them a small payout. Along with the settlement, NAR is also changing some long-standing practices related to sales commissions.
Background
For years, real estate agents have often had to join NAR and follow its rules for local Multiple Listing Services (MLS). These databases are essential for brokers to list properties for sale. Traditionally, listing brokers would work with buyer’s agents and split the commission paid by the seller, with the details only visible to agents through the MLS.
The plaintiffs argued that NAR and brokers requiring agents to be NAR members conspired to keep commissions high. They claimed this practice maintained a nationwide standard of five to six percent of the sales price, which is much higher than in many other countries.
What’s Changing?
Starting August 17, 2024, NAR will roll out new policies on how real estate brokers get paid:
- Commission Offers: Offers for buyer’s agents won’t be required or shown in the MLS anymore, though they’re still allowed. Listing agents can advertise specific commission offers on brokerage websites and through direct communication.
- Negotiation: Home sellers and their agents will negotiate directly with buyers and their agents about compensation. Buyers will need to discuss and set compensation with their agents before touring homes, signing written agreements that outline the agents’ services and charges.
What This Means for Buyers and Sellers
These changes are designed to encourage more negotiation and competition, which could lower costs for sellers. In markets where sellers’ costs go down, home prices might also drop. Some economists think commissions could fall by as much as 30% if buyer’s agents face pressure to lower their fees, but this isn’t guaranteed.
The impact on real estate commissions will depend on market conditions and how sellers, buyers, and agents adapt to the new rules. Brokerages have overhead costs, and agents often split commissions with their brokers, which could affect their willingness to reduce fees.
Buyers will now decide the commission for their agents, but the money may not always come from their own pockets. Offers could be contingent on the seller paying the buyer’s share of the commission or include a request for a credit toward closing costs. Current lending guidelines prevent most buyers from adding commission costs to their mortgages, though a rule for VA loans has been temporarily suspended.
Sellers might still cover buyers’ commissions, as it could be in their best interest. With nationwide home prices rising over 50% since 2019 and high interest rates making mortgage payments less affordable, sellers with equity are often better positioned to pay commissions. A seller willing to cover the buyer’s commission might receive more offers and a higher final price.
Challenges for Buyers
Online platforms have made it easier to shop for homes without an agent, but buying a home is a significant financial transaction with potential pitfalls. Many buyers, especially first-time buyers, could benefit from professional representation. However, they may need help from sellers to cover agent fees, putting them at a disadvantage compared to buyers with more cash.
Negotiating commissions could make it harder to finalize deals, requiring buyers to search longer and make more offers. While the market adjusts, sellers might see little change in commission costs. Over time, the new rules could spark innovation, creating new business models and lower-cost options.