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NAR LAWSUIT SETTLED - What Does This Mean ?

The National Association of Realtors had settled the class action lawsuit by agreeing to pay $418M in damages, with large changes coming to how buyer agent commissions and contracts work. The changes are expected to go into effect in July of this year. 

One of the new rules prohibits realtors from listing the Buyer’s Agent’s commission into the MLS. This is a game changer and will stop the way this industry has handled commissions for the past 80 years.  If approved, it could be seen as a way to reduce the amount of commissions paid, but is it really? The media was very quick to report that commissions should be reduced as a result of this settlement  and save home sellers money. However, many facts or concerns are not being reported and leaving home buyers and sellers with a lot of questions. 

Under the most common current listing contracts, home sellers pay both the commission for the broker representing them (the listing agent) and the broker that brings and represents the buyer (the buyers agent). Often, this would be 50% of the total commission each, so on a 5% listing commission, 2.5 % would often be referred to the buyer's agent. The buyer's side commission would then be published on the MLS, so buyer's agents would know what they would be paid on any given listing should they bring the buyer that closes on it. While both the total commission and the portion offered to the buyer's agent have always been negotiable, the changes seek to make this even more clear and, starting in July, information related to any offer of seller - paid commissions to the Buyer's Agent will be removed from the MLS. This new change makes it clear that all commissions are negotiable, but it is worth pointing out that they always have been. Going forward, it may become more common for sellers to offer smaller commissions or none at all to the Buyers Agent, which will add an additional layer of negotiation considerations to the purchase offer process, as Buyer's Agent's compensation will be negotiated directly with the buyer. 

As a result, another change coming in July from this settlement will require agents representing a Buyer to enter into a written agreement with their buyer clients, clarifying commissions to be paid to represent them in a purchase. 

The MLS will require a Buyer Representation Agreement prior to even showing a home, to ensure that the Buyer is aware that an obligation to pay for the commission falls on them UNLESS the seller offers to cover part or all of the fee. Again, the idea is to 'decouple' and clarify commissions so that the party that benefits most directly from the service pays for it.  Since Buyer's Agents act to protect the interests of the buyer - investing their time, knowledge and experience in order to advise and guide the Buyers during what's likely the most expensive purchase of their lifetime - the Buyer is the party that will be ultimately responsible for paying the Buyer's Agent (unless the Seller agrees to cover all or part of the fee, which we still anticipate will be common practice). 

What will this mean for the market? Well, again, up to now, Buyer's Agent's commissions have almost always been paid by the sellers and advertised in the MLS. This removal of the information from the MLS may lead to that practice being reduced, and if so could put additional costs onto the home buyer if no (or heavily discounted) commissions are offered by the Seller. In today's tough housing market, many Buyers already have a difficult time trying to save for closing costs and the down payment for a home purchase. For some Buyers, an extra fee in the form of now paying commissions to the real estate agent representing them may drive them down to a lower purchase price, or even out of the market entirely. If that happens, we may see prices dip owing to lessened Buyer demand. 

Ultimately, the market will continue to dictate whether offering to pay all, some, or none of the Buyer's Agent commission will be most advantageous to the Seller's final bottom line at closing. 

Subscribe to our newsletter to keep an eye out for future updates and changes to the real estate market.   

The HEROES next newsletter will address additional buyer concerns about entering into an escrow without representation.    Is going to the "listing agent" a good idea? 


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