The Housing Market Just Got Turned Upside Down — Here’s What Buyers & Sellers Need to Know

In mid-March of 2024, a big change happened in the world of home buying: The National Association of Realtors (NAR) settled a lawsuit in which the organization was accused of conspiring to inflate agents’ commissions and, therefore, home costs. 

At the heart of the settlement is that going forward, the standard Realtors’ (aka dues-paying members of NAR) compensation will no longer be the typical 5-6% of the cost of the home, split between both the buyers’ agent and sellers’ agent, and paid for by the seller. The reason for that is that lawyers alleged that this commission would be built into the cost of the home, inflating home prices, and that the practice violated antitrust laws. (The NAR says commissions have always been negotiable.)

At the time of the settlement, NAR Interim CEO, Nykia Wright, said that “continuing to litigate would have hurt members and their small businesses,” and that NAR got “the best outcome we could achieve in the circumstances.”

The full terms of what the settlement means for Realtors, buyers, and sellers is still coming into focus. What’s definite, though, is that sellers and buyers will only be responsible for paying their own agents on their side of the deal (although different deals may be structured to cover these costs differently).

But the major changes hit the market on August 17, and even if you’ve already signed a representation agreement with your agent as a buyer or seller, you may still be affected by the biggest upheaval to the market in years. The gist? Homebuying is changing in a major way — and whether it makes life easier, or home buying cheaper, remains to be seen.

“The hope is that this increased transparency will empower buyers, possibly making it easier for them to negotiate fees or understand the value they receive from their real estate agent’s services,” Alyssa Soto Brody, cofounder of a New York City- and Miami-based real estate sales and marketing brokerage, previously told Apartment Therapy.

But some experts, like Tanya Monestier, a professor of law at the University at Buffalo School of Law who’s taught contract law for over 15 years, expects there to be a ton of confusion among buyers, real estate agents, and sellers, at least at the beginning.

“At least for the short term, I think it’s going to be a mess,” Monestier says. “I’m not sure how much commissions will come down, given that sellers [will still be] empowered to pre-offer compensation to the other side’s agents.” (Sellers may still agree to pay the buyers’ agent, even post-settlement.)

Even if you think you already know the ins and outs of the settlement (or are still wondering what it even means), there are a confusing slew of changes coming. In order to know how to prepare for the changes, Apartment Therapy spoke to Monestier extensively for this piece, who spent her summer digging into the settlement to parse through all the changes, to understand the nuance on the ruling. Apartment Therapy leaned on her decades of experience in law to help guide buyers and sellers to understand what will happen next.

In her research, the main thing to understand about the settlement is the two major rule changes.

Before, a house listed on the multiple listing service (MLS) would have the sellers’ agent commission listed as a fee on the house listing, and the sellers’ agent would split that commission with the buyers’ agent, usually at a total of 6%. Starting August 17, agents will no longer be allowed to list their commission on the MLS.

Instead, and separately, buyers will now have to hash out how they will pay their real estate agent, also known as the buyers’ agent, before they tour properties. (Touring a property is not the same as going into an open house — you’re still able to visit open houses without having an agent agreement signed.)

Per CNN reporting, in 18 states Realtors are already required to sign buyers’ agent agreements, so in those 18 states the process of hiring a Realtor and signing an agreement with them that discusses compensation right off the bat won’t change at all. 

In theory, the changes are a good thing for buyers — buyers and sellers will both have more room to negotiate how much they pay their agent for their services, as it won’t be a given on the listing as it was in the previous system.

Prior to the settlement, a house would be listed on the Multiple Listing Service (MLS) with the commission, a standard commission of 5-6%, listed on the house. At the time of the sale of the house, the seller would pay their agent (also known as the sellers’ agent) and the buyers’ agent the entire 6% of the total sale cost of the home, which those agents would typically split down the middle (of course, the agents don’t take home all that money).

“The biggest change is that the buyer has to put themselves on the hook for a specified rate of commission right now. It could be that it all works out in the end, that the [seller will still offer to] pay, or that they agree to concessions. But if not, if the buyer wants to go forward with this transaction, they have committed to paying their broker 2.5 or 3%. That is a huge, huge change. And I think one that consumers are going to be scared of,” Monestier says.

And while logically buyers were more or less already paying for this by buying the home, it feels different when it’s not all wrapped up in the home-buying transaction, and means, at minimum, that they’ll be paying separate — or more — costs at closing.

Monestier broke down the three most common ways she thinks commissions will be paid out going forward (although anything is possible).

The first model, she says, is the one that already existed. In the world post-August 17, it’s possible that the seller of the home you want to buy will agree to cover a commission that covers not just their own agent, but the buyers’ agent as well, in order to be super competitive in the market.

The second model, she says, is “the split model” — and also relies on the seller to pay out both their own agent and the buyers’ agent. In this case, the seller will pay two separate commissions: one to their agent and the buyers’ agent.

The third model, she says, “is the pay-for-your-own agent model.” In this model of payment, the person you are buying a house from, or the seller, has likely put in writing that they are only going to pay their agent. In order to get your agent paid, you may then put in an offer that’s some percentage higher than what you want to pay for the home (in order to pay your agent) and ask for some percentage back as a “concession.”

In all of these models, the key difference between the system of the past and the system of today is that these are all models that are negotiated, and explicitly signed by both the buyer and the seller. 

In theory, the upside of the post-settlement reality of home buying and selling is that both buyers and sellers get to negotiate how much they want to pay their agents. If an agent doesn’t agree to the commission that the buyer is comfortable offering, they should be able to shop around to find agents that fit within their budget.

“The only way that commissions can ever come down, I think, is to have them be negotiated on both sides. So you need to split them up. You have to have the seller negotiating hard on their end and have to have the buyer having skin in the game and negotiating on their end,” Monestier says.

But at the same time, your ability to negotiate will depend on the market and the brokerage you’re trying to work with: “The exact reduction in commissions, if any, will vary by market, agent, and brokerage,” Soto Brody previously told Apartment Therapy.

If you don’t want to sign a listing with an agent just because you’re starting to look at properties, there are two important things to note about the new landscape of homebuying after this NAR settlement.

The first is that you do not need an agent, nor do you need to sign any agreements, to go to open houses. 

The second is that, per Monestier and her research, you may sign what is called a “touring” or “showing” agreement with an agent to view a specific property. Sometimes, these are short-term agreements that cover a multitude of properties without putting yourself on the hook for their commission, but not always.

“These are structured differently,” Monestier says. “And much like the different models of compensation, different brokerages will have a different way of doing this. A legitimate way of doing this is to say, ‘Okay, I’ll take you to view the property at 123 Main Street. If you want to put in an offer on that property, my commission rate is 3%, and you sign that and it’s like a one-off deal.’”

Whereas in the olden days you didn’t have to sign anything to start viewing properties, under this new agreement you do have to sign something when you start working with an agent — either a total representation agreement where you have already agreed upon how much you are going to pay your agent, or a touring/showing agreement. 

Monestier’s personal advice is that if you’re going to sign an agreement prior to touring, you choose one “that provides the compensation rate from the get-go.”

Just like before the settlement, there are plenty of things to look out for when starting a new business relationship with a real estate agent. 

The first most salient and universal piece of advice Monestier stresses is to always, always read contracts in full before you sign them. This goes for any contract. Similarly, always get agreements down in writing.

She also says you should keep in mind any modification agreements that your real estate agent may ask you to sign. For example, if you as a buyer have agreed to pay your agent 1.5%, but you make an offer on a home where the seller is offering to pay out your agent 3%, they may ask you to sign a modification agreement to allow them to get paid that split. 

And finally, remember that in the new model you are not obligated to pay the commission of the buyers’ agent, or that if you offer concessions as a seller to the buyer in order to cover their agent’s commission, that’s optional, not necessary.