Here’s How That $418 Million Realtor Lawsuit Will Change Buying & Selling Your Home — Forever

published Mar 26, 2024
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My fiancé and I are currently selling both of our homes in Colorado — a state with one of the highest average home prices — and buying a new one together in Denver. This means I’m no stranger to Realtor commissions.

Currently, sellers pay about 5% to 6% of the sale of their homes to cover the commissions for both their listing agent and the buyer’s agent. In total, when we factor in the purchase of our new home, Realtors will make somewhere in the neighborhood of $150,000 in commissions on all three of our transactions.

But on March 15, 2024, the National Association of Realtors (NAR) announced it will pay $418 million to settle allegations that it conspired to inflate agents’ commissions, which, in turn, artificially inflated home costs. “Ultimately, continuing to litigate would have hurt members and their small businesses,” NAR Interim CEO Nykia Wright said in a statement. “While there could be no perfect outcome, this agreement is the best outcome we could achieve in the circumstances.”

 Real estate and consumer experts say the settlement terms could majorly shake up the way Americans buy and sell homes because, in the future, sellers will no longer be required to pay commission to buyers’ agents.

Going forward, buyers’ agents will need to come up with new ways to earn commissions. This could mean that buyers negotiate commissions directly with their agents or ask for flat rates, or the commission gets paid through a seller concession (more on that below!).

The biggest takeaway if you’re buying or selling? You now have the potential for increased transparency and potentially more competitive commission structures in the real estate market, says Alyssa Soto Brody, cofounder of Development Marketing Team, a NYC and Miami-based real estate sales and marketing brokerage. “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,” she says.

Since my fiancé and I have one Realtor representing us in both of our individual sales and the purchase of our new home, we were ready to negotiate the commission. However, many consumers don’t know they have the option to negotiate, which is at the heart of lawsuits that have been filed in recent years against NAR. 

While some say the ruling evens the playing field in a housing market where prices continue to climb and high interest rates are pushing homeownership further out of reach for many first-time buyers, others worry that it could just mean more fees for buyers in the already tough market.

How Much Commission Do Realtors Make? 

Realtors get paid by earning a commission based on the sale price of the home. While commission rates can vary, they often hover around 5% to 6% of the home’s sale price in the United States, Soto Brody says. 

This commission is usually split between the buyer’s agent and the seller’s agent, meaning the seller is paying a buyer’s expense. 

However, most agents have to split the 2.5% to 3% they individually make on each sale with their brokerages, and they have other costs of doing business, so the final take-home commission is close to half that number, explains Rebecca Hidalgo Rains, CEO and managing broker at Integrity All Stars, who has worked in Phoenix.

The median home price in the U.S. is currently $417,700, according to Federal Reserve Economic Data (FRED), so the commission for a buyer’s agent at 3% would be $12,531 before any brokerage fees or costs. 

How Will Real Estate Fees Work Now? 

This remains to be seen as it will largely depend on how realtors and their brokerages adapt to the new regulations and competitive pressures, Soto Brody says. “The exact reduction in commissions, if any, will vary by market, agent, and brokerage,” she explains.

TD Cowen Insights, though, estimates that the settlement will slash real estate commissions by 25% to 50%, Reuters reported.

When Does This Go into Effect?

One important thing to know if you’re a homebuyer or seller: This is not an approved settlement and will have no immediate impact on the current real estate landscape, points out Claudia Cobreiro, a Miami-based attorney who practices real estate law. Given that it’s a class-action lawsuit, it could be months before the DOJ approves the settlement, and any changes made to the settlement could delay things further.

According to the terms of the current proposed settlement, a buyer’s agent’s commission will no longer be negotiated on the multiple listing service (MLS), but there are still endless ways for these agents to be compensated. 

One example is a seller concession, Cobreiro explains. A seller concession is a credit the seller provides to the buyer at closing. Historically, these credits have been used to cover certain repairs or imperfections discovered during the property inspection, she explains. Most recently, as interest rates peaked, they have also become a popular tool to help buyers pay for an interest-rate buy-down.

Another possibility is through a buyer-broker agreement that’s signed between a buyer and their real estate agent, Cobreiro says. It can outline essential terms, such as the duration of the relationship and how much the agent will be paid should the buyer move forward with a purchase.

Sellers involved in the lawsuits have alleged that agents were incentivized to not show properties to their buyers if the seller’s broker was offering a lower commission to the buyer’s agent. As part of the settlement, NAR denies any wrongdoing, saying in a recent statement “the settlement makes clear that NAR continues to deny any wrongdoing in connection with the Multiple Listing Service (MLS) cooperative compensation model rule (MLS Model Rule).” 

The takeaway? Buyers may now be asked to cover some or all of their agent’s commission directly, either through up-front fees or contingencies in purchase offers. 

“This could lead to a broader range of properties being shown to buyers, but it also means buyers need to be prepared to negotiate and potentially cover additional costs associated with their agent’s services,” says Laura Adams, MBA, and a senior analyst with AceableAgent.

Is the NAR Settlement Bad News for Homebuyers?

Experts are split on this, but zooming out and looking at the entire cost of buying a home helps put it into perspective. Hidalgo Rains says she thinks the settlement “is a tragedy for first-time homebuyers,” adding, “at the end of the day, buyers are going to lose concessions more often than not because they may have to give them up in order to pay their own agent if they want representation.”

Marc Geredes, COO at Sundae, an online real estate market, expects the settlement will nominally lower housing prices — but only by the amount of the commission for the buyer side of the transaction, shaving $15,000 or so off the price of a $500,000 home. However, buyers will still have to pay their agents, so it could be a wash. 

However, more sellers might be incentivized to list because they no longer have to pay a commission to a buyer’s agent. More homes on the market would lead to more competition, potentially lowering home prices. 

A big looming question, according to Geredes: Will buyers have to come out of pocket now to pay this commission or can they roll it into their financing?

Only time will tell, but what’s clear is that the NAR settlement terms are a real estate industry game-changer even if the jury’s still out on how buyers (and sellers) will fare in the future.