A historic class action lawsuit may change the way Americans buy and sell homes.
The National Association of Realtors agreed to a $418 million settlement last week in an antitrust lawsuit in which a federal jury found that the organization and several major real estate brokerage firms conspired to artificially inflate agents' commissions on the purchase and sale of real estate.
NAR's Multiple Listing Service, or MLS, used locally across regions in the United States, has streamlined compensation rates for both buyer and seller agents.
At the time of listing the property, the home seller negotiated with the listing agent about the compensation the buyer's agent would receive, which appeared in the MLS. However, if the seller was not aware of his ability to negotiate, he was usually limited to paying the listed brokerage fee.
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The proposed settlement will remove the commission offer entirely from the NAR system and home sellers will no longer be responsible for paying or offering commission to both buyer and seller agents, said real estate attorney Claudia Cupero, founder of Cupero Law in Coral Gables. , Florida.
“The rule that was the subject of the litigation only requires that listed brokers make an offer of compensation,” NAR wrote in a press release.
“Commissions remain negotiable as they were,” the organization wrote.
However, experts say some of these changes may take some time to materialize.
The settlement process “may take some time”
If a settlement agreement is accepted in a lawsuit between two people, the court will generally not consider the settlement. However, Cuperro said that in a federal class action lawsuit, a case that affects a large number of people, there will be a period for the court and interested parties to review the settlement and provide comments and feedback on the agreement.
“This is the process we are about to go through, and this process may take some time,” she said.
As proposed, the settlement would result in NAR removing commissions entirely from its MLS system by July. That might be optimistic, Cuperro said.
“It would be more realistic to see this implemented later this year,” she added.
In the meantime, it's “business as usual” for buyers and sellers, Cupero said. “There is nothing agents should do differently currently in their ongoing transactions.”
A buyer or seller already on the market likely won't be affected by the settlement unless their property has been on the market a little longer than usual, she said.
“The big gray area here is how to handle buyer (agent) commissions going forward,” Cuperro said, as there is no final agreement yet that clearly indicates how that will be handled.
What settlement could mean for homebuyers
The settlement agreement does not state that the buyer's agent will not be paid nor that the buyer's agent cannot charge a fee.
“The big question here is who will pay for these services going forward. Will it be the ultimate buyer who will have to collect the buyer's agent's commission, plus closing costs and the down payment?” Cupero said.
While commission fees 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. Experts say using an agent will still be a smart way to achieve this.
“A great local agent can give you a competitive advantage,” said Amanda Pendleton, home trends expert at Zillow Group. This is especially true as demand for low-priced homes is expected to remain, she said.
Here are two things to know about how settlement changes the homebuying process:
1. Buyers Can Be Responsible for Their Own Agent's 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 this settlement, the seller will not be responsible for the buyer's agent's commission fees. So, these are new potential fees that buyers should factor into their budget. Historically, if a buyer's agent made half a commission of 5% or 6%, that equated to thousands of dollars.
For example: The median home sale price by the end of 2023 was $417,700, according to the Federal Reserve. That means commissions at 5.37% — the average rate for 2023, according to Lending Tree — amount to roughly $22,430, of which about $11,215 might go to the buyer's agent.
But bypassing agent services may not lead to immediate savings, especially for first-time buyers, experts say. You can put yourself at risk by leaving the home buying process entirely up to the seller and their agent, Cupero said.
Sometimes things show up on your home inspection report that deserve a credit from the seller, but if you don't have an agent, the seller's agent may not volunteer it, Cuperro says.
Doing so would be a breach of their fiduciary duty to the seller, she said, and affect their commission if the price of the property falls.
“Signing the contract is the least you can do; there are a lot of things that happen throughout the deal that really require expertise and guidance by someone who understands the process,” she said.
2. Buyers may be asked to sign a contract early: If buyers become responsible for their agent's commission, you'll likely see more agents asking buyers to sign a buyer-broker agreement upfront, before the agent begins helping them find a property. .
Most brokerage firms have a buyer's agency agreement, but it is common for real estate agents to wait to present the contract.
“They want to win the person's business, and they don't want to intimidate them by having to sign any contracts,” said Steven Nicastro, a former real estate agent who writes for Clever Real Estate.
Moving contract talks to an earlier stage of the process is a precaution to protect buyer's agents in the market.
“This may lead to negotiations actually taking place at the first meeting between the buyer and the buyer's agent,” Nicastro said.
Know that you can negotiate the commission rate as well as the length of the contract, which can extend from three months to a year, Cupero said.
