What the settlement of commissions for home sales means to you

Redfin CEO Reacts to NAR's $418 Million Commission Claims Settlement

A landmark class action lawsuit may change the way Americans buy and sell homes.

The National Association of Realtors agreed a $418 million deal last week in an antitrust lawsuit where a federal jury found that the organization and several large real estate brokerages had conspired to artificially inflate agents' commissions on the buying and selling of real estate.

The NAR Multiple Listing Service, or MLS, used locally in areas of the US, facilitated clearing rates for both buyer and seller agents.

When listing a property for sale, the home seller negotiated with the listing agent what compensation would be for the buyer's agent, which was listed on the MLS. However, if a seller did not know that he could negotiate, he was usually forced to pay the listed brokerage fee.

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The proposed agreement would completely eliminate commission bidding from the NAR system and home sellers will no longer be responsible for paying or offering commissions to both the buyer and selling agents, said real estate attorney Claudia Cobreiro, founder of Cobreiro. Law in Coral Gables. , Florida.

“The rule that has been the subject of litigation requires only that publicly traded brokers communicate an offer of compensation,” the NAR wrote in a press release.

“Commissions remain negotiable, as until now,” the organization wrote.

However, some of these changes may take time to materialize, experts say.

The settlement process “may take some time”

If a settlement agreement is accepted within a lawsuit between two people, the court generally will not review the agreement. However, in a federal class action lawsuit, which affects a large number of people, there will be a period for the court and interested parties to review the settlement and offer comments and opinions on the settlement, Cobreiro said.

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“That's the process we're about to enter and that process may take some time,” he said.

As proposed, the deal would see NAR completely eliminate commissions from its MLS system by July. That may be optimistic, Cobriero said.

“It would be more realistic for this to be implemented by the end of this year,” he said.

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Meanwhile, “everything remains the same” for buyers and sellers, Cobreiro said. “There is nothing agents should do differently currently in their ongoing transactions.”

A buyer or seller already on the market probably won't be affected by the deal unless their property is on the market a little longer than usual, he said.

“The big gray area here is how will the buyer react? [agent] commissions will be handled in the future,” Cobreiro said, as there is no finalized agreement yet that clearly indicates how that will be handled.

What the deal could mean for homebuyers

The settlement agreement does not say that the buyer's agent will not be paid or that the buyer's agent cannot charge fees.

“The big question here is who will pay for those services in the future. Will it ultimately be a buyer who will have to come up with the buyer's agent's commission, plus closing costs and a down payment?” Cobreiro said.

While the commissions are negotiable between the parties involved, knowing what cards you have on the table as a home buyer will be more important now than before. According to experts, using an agent will continue to be a smart way to achieve this.

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“A great local agent can give you a competitive advantage,” said Amanda Pendleton, Zillow Group housing trends expert. This is especially true as lower-priced starter homes are expected to continue to be in demand, she said.

Here are two things you should know about how the deal could change the home buying process:

1. Buyers may be responsible for their agent fees: Historically, real estate commissions typically come out of the seller's pocket and are split between the buyer's and seller's agents.

As a result of the agreement, the seller will no longer be responsible for the buyer's agent commissions. So this is a potential new fee that buyers should factor into their budget. Historically, if a buyer's agent received half of a 5% or 6% commission, that amounted to thousands of dollars.

For example: the average sales price of a home at the end of 2023 was $417,700, according to the Federal Reserve. That would mean commissions at a rate of 5.37% (the average rate for 2023, according to Lending Tree). They amount to approximately $22,430, of which about $11,215 could go to the buyer's agent.

But avoiding the services of an agent may not result in direct savings, especially for first-time buyers, experts say. You could put yourself at risk by leaving the home-buying process entirely in the hands of the seller and his or her agent, Cobreiro said.

Sometimes things show up on your home inspection report that warrants a seller credit, but if you don't have an agent, the seller's agent may not offer to do it, Cobreiro said.

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Doing so would be a breach of his fiduciary duty to the seller and would affect his commission if the price of the property drops, he said.

“Signing the contract is the least of it; a lot happens during the transaction that really requires the expertise and navigation of someone who understands the process,” he said.

2. Buyers may be asked to sign a contract at the beginning: If buyers become responsible for their agent's commission, you are likely to see more agents asking buyers to sign a buyer-broker agreement up front, before the agent begins helping them find a property.

Most brokerage firms have a buyer agency contract, but it is common for real estate agents to wait to submit the contract.

“They want to take over the person's business, they don't want to scare them into signing any contracts,” said Steven Nicastro, a former real estate agent who writes for Clever Real Estate.

Postponing contract negotiations earlier in the process is a precaution to protect buyer's agents in the market.

“That could lead to negotiations taking place at the first meeting between a buyer and their agent,” Nicastro said.

The type of commission can be negotiated as well as the duration of the contract, which can range from three months to one year, Cobreiro stated.

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