Real Estate Industry Settlement Has Experts Mixed On Predictions For Home Buyers – Forbes Advisor

The size of real estate commissions—and who pays them—could change dramatically now that the National Association of Realtors, or NAR, has agreed to pay $418 million to settle a series of antitrust lawsuits.

As part of the settlement, buyers will now negotiate their agents’ fees directly, contracting with them before the home search begins. The changes are expected to go into effect by mid-July, pending court approval.

By settling these cases, NAR releases 1 million of its members across the U.S. from liability.

The settlement could cut real estate commissions by thousands of dollars and lower home prices overall, saving money for both buyers and sellers, according to some experts.

For years, brokers who listed homes on the NAR’s multiple listing service (MLS) were expected to pay a set commission to the buyer’s agent. The two sides would split a fee, typically about 6% of the home price. This fee, usually paid by the seller, was baked into the sales price and thus the buyer’s mortgage.

In 2019, several antitrust lawsuits were filed by groups of home sellers who objected to paying what they said were oversized fees to buyers’ brokers along with their own agents. The plaintiffs alleged there had been a price-fixing “conspiracy” among the real estate brokers.

In a statement released on Friday, the day the settlement was announced, NAR denied any wrongdoing. “It has always been our goal to preserve consumer choice and protect our members to the greatest extent possible. This settlement achieves both of those goals,” said Nykia Wright, interim CEO of NAR.

What The Settlement Means

The settlement requires two changes:

• Brokers are prohibited from advertising compensation on the MLS. Any commission agreements between buyers, sellers and agents must be negotiated separately; fees cannot be included in the listing price.
• MLS participants (typically real estate agents) must have written representation agreements with buyers. Before an agent shows homes to a buyer, they must have a contract specifying how much the buyer will pay the agent. The seller may or may not cover the fee.

What Comes Next? Experts Predict

So far, there’s no clear path forward. The settlement agreement gives buyers and sellers an array of new options.

“I think we will begin to see some creative buyer’s agent arrangements,” says Marty Green, a principal at Polunsky Beitel Green specializing in residential real estate lending. “But these changes won’t happen overnight, and I anticipate a certain amount of uncertainty for the coming months. The MLS rules will need to be changed, agreements will have to be modified, business practices reconsidered, and mortgage underwriting adjusted.”

For Buyers

• Buyers may have to pay their own agent’s fees.  A major change for buyers is that sellers may no longer foot the bill for the buyer’s agent’s commission. “The settlement could make it more expensive for buyers, as any changes in commission structures may result in buyers bearing a larger portion of transaction costs,” says Madison Sutton, a New York-based agent at real estate firm Serhant.
• Buyers will have to put agreements with their agents in writing to ensure fees are transparent. Matt Van Fossen, vice president of the advocacy group Community Home Lenders of America, says that transparency could promote competition among agents. “There are almost 2 million agents in the U.S. Most don’t do any transactions in a year, so you’ll probably see those agents cutting their fees to compete with top-producing buyer agents,” Van Fossen says.
• Buyers may have more choices in how and what they pay. Some agents may charge a flat fee for their service, while others may have an à la carte fee structure for various tasks such as showing houses, submitting offers and negotiating prices and terms (such as contingencies). Buyers may also pay less overall if lower commissions result in a drop in home prices, as some experts suggest.
• The change may hobble some home buyers, especially first-timers and those on fixed budgets. “FHA and VA buyers…are going to have more difficulty coming up with options to pay their real estate agent,” says John Graff, CEO of Los Angeles-based Ashby & Graff Real Estate. If they can’t afford to pay agent fees, he says, “they also risk going through the largest financial transaction in their life without any representation or experienced hand to guide them.”

For Sellers

• Sellers could pocket some extra cash under the new rules. In the past, a $550,000 home with a 6% commission would end up costing a seller $33,000 in fees. But if sellers decide to pay only their own agents or offer less cash to the buyer’s agent, they could potentially hold on to thousands of dollars.
• Sellers may profit by paying the buyer’s agent fees. Sellers willing to pay fees to the buyer’s agent could attract more agents, meaning the home could get more traffic and, possibly, more offers. That could in turn drive up the home’s selling price. “Drumming up more competition is less important in a seller’s market where the house sells itself,” Van Fossen says. “But in a buyer’s market, you need agents to attract buyers.”

Navigating the New Commission Landscape

How the new rules will change transactions for buyers, sellers and brokers remains to be seen.  However the situation shakes out, buyers and sellers entering the housing market this spring and summer will want to consider this advice.

For buyers

• Shop around. Take your time to find an agent you trust and feel comfortable working with. Even experienced agents may need time to adapt to these changes. So it’s even more important to find someone reputable who is transparent about fees and services and communicates clearly with you.
• Educate yourself. The Department of Housing and Urban Development, among other entities, offers home buying training and events nationwide.
• Leave room in your budget for fees. One property might have the seller covering the buyer’s agent fee, while another might expect the buyer to pay it. Result: very different overall closing costs. For example, paying a 3% commission on a $400,000 property adds $12,000 to the cost of the home.

For sellers

• Explore your options. Sellers will likely have more choices when it comes to how much they pay in agent fees. Work with pros who can explain what various price options mean for your bottom line.
• Know the law (or work with someone who does). It may be tempting to do without an agent and pocket the full sale price, but be aware that home sales involve legal requirements for disclosure. A listing agent can help you obey these rules to avoid a lawsuit later on.
• Remember that fees are negotiable. As part of the purchase agreement, sellers may decide to negotiate the commission paid to the buyer’s agent, alongside factors like the purchase price and closing cost credits. This is a potential savings worth discussing with your agent.