A recent $418M settlement from the National Association of Realtors (NAR) antitrust lawsuit could change the real estate market. With home prices continuing to rise, the federal jury found that real estate brokerages nationwide have been conspiring to inflate real estate agents’ commissions on the buying and selling of homes. What does this mean for you?
Homes are typically listed and bought on the NAR’s MLS or multiple listing service. It was found that the commission rates asked or required on home listings were not advertised as negotiable and were demanded to be paid by the seller. This settlement and the changes to follow this summer, after court approval, could change all that.
1. Sellers are no longer solely responsible for agent commissions.
Typically, the seller of the home covers the 6% commission payment once the home is sold. That 6% commission is usually split between the selling and buying agents, coming from the seller’s pocket. These changes will no longer require the seller to pay the buying agent commission, and they won’t list the commission on the MLS listing.
This now puts pressure on home buyers to pay the commission of an agent if they choose to use one. They may have to sign written contracts upfront to work with an agent as well, which buyers typically don’t like to do. One result could be higher closing costs to pay the agent’s commission out of pocket.
2. Rates are negotiable.
Another key takeaway is that the commission rates you pay an agent to buy or sell a home are negotiable. The standard 6% was never required. You have always been able to negotiate lower and put more money in your wallet. Now that sellers don’t have to worry about paying the buying agent, they only have to worry about the 3% to their selling agent. In all cases, that can be negotiated down to 2% or even 1%.
In the past decade, we have seen a big shift in fees and commissions: free stock trades, lower cost ETFs, no fee mutual funds, etc. This is one more piece that will follow the trend of consumers having more power to choose what and how much they pay.
The bottom line
Buying or selling a home could become more affordable as home prices adjust downward to compensate. Buyers will not have to overcome the broker fees priced into the home being sold. As a seller, you may get to keep more of your equity. As a buyer, your out-of-pocket costs could be slightly higher, though. Home prices could also rise as agents try to squeeze more out of smaller commissions.
It is my opinion that you should use an experienced agent when buying or selling a home. They can help with many of the legal and transaction-based requirements aside from showings. Know that you have the power as the buyer or the seller to negotiate what you will pay an agent and how you will pay them.
