Adobe Stock photo National Association of Realtors said last week it had agreed to pay $418 million to resolve more than a dozen antitrust lawsuits accusing the association of imposing rules that led to inflated commissions for agents. Due to the ensuing changes, sellers won’t be required to pay commissions for buyers’ agents, unless they choose to do so, and buyers’ agents are “going to have a lot more conversations before showing a house to anybody,” Phillip Stone, co-owner of A New Dawn Realty in Stokesdale, said.
NW GUILFORD – Starting in mid-July, the rules for how real estate agents earn commissions are going to change after the National Association of Realtors (NAR) settled a landmark lawsuit.
NAR said last week it had agreed to pay $418 million to resolve more than a dozen antitrust lawsuits accusing the association of imposing rules that led to inflated commissions for agents. While admitting no wrongdoing, the trade group representing more than 1.5 million people working in real estate agreed to end a rule that, according to the suits, forced sellers to pay too much in commissions.
The suits challenged NAR’s rule requiring a seller’s agent to make “blanket unilateral offers of compensation” to a buyer’s agent. In short, agreeing to compensate the buyer’s agent is required for the seller’s agent to list a house on the Multiple Listing Service (MLS), NAR’s online portal where more than 80% of houses are bought and sold nationwide.
The suits argued that the rule forced sellers to pay inflated commissions to buyers’ agents. Sellers’ offers to pay commissions induced “buyer brokers to show their homes to the buyer brokers’ clients,” according to the plaintiffs in a Chicago lawsuit, Moehrl v. National Association of Realtors et al.
Typically, home sellers pay about 5 to 6% in commission fees, divided between their own broker and the buyer’s broker.
Under the settlement, which requires a judge’s approval, sellers won’t be required to pay commissions for buyers’ agents, unless they choose to do so. Rather, buyers would negotiate compensation with agents.
The settlement requires that “buyers pay their buyers’ agents directly,” said Phillip Stone, who owns A New Dawn Realty in Stokesdale with his mother, Dawn. He added, however, that “a seller can still offer compensation.”
Still, sellers may wind up paying less in commissions since they’re not required to pay commissions to buyers’ agents.
As consumers figure out the ramifications of the settlement, including its financial consequences, agents need to stress the value of their services, according to Realtors active in northwest Guilford County.
Since the settlement’s announcement March 15, NAR has been advising members how to “describe our value to the buyer and the seller,” Stone said. “It’s a lot more than opening the door” to a listing.
“We need to explain the process because it can be very challenging for buyers and sellers to try to navigate,” added Kara Winicki, an agent for eXp Realty in Summerfield.
The settlement opens up the market to “a greater variation in types of compensation and rates charged by agents,” like flat-fee and discount brokerages, said Stephen Brobeck, senior fellow at the Washington, D.C.-based Consumer Federation of America.
“[The] buyer will still be able to request a concession from sellers that includes funds to help cover buyer agent compensation, but this will be after they have had the opportunity to comparison shop,” the News and Observer quoted Brobeck as saying. It will also encourage sellers to negotiate their listing agents’ compensation, he added.
If sellers pay less in commission, they may keep more of the proceeds. That’s not a certainty, however, since a change in commission may affect other variables, such as the sale price of a house, according to Cunningham.
If agents earn less from commissions, they may try to make up for the difference in a variety of ways. Those include options such as charging flat fees for representing buyers, or charging by the hour or for each time they accompany a buyer to a showing, according to a recent article by Nerdwallet, an online personal finance site.
Buyers’ agents “would be required to enter into written agreements with their buyers before touring a home,” according to NAR. “These agreements can help consumers understand exactly what services and value will be provided, and for how much.”
It also means that “you’re going to have a lot more conversations before showing a house to anybody,” Stone said.
In a possible drawback of the settlement, paying a commission to a buyer’s agent outside of the real estate closing may be a financial strain for first-time homebuyers or others with limited financial resources.
“Those are going to be the ones who are probably going to have the least opportunity to pay directly out of pocket,” Stone said. Housing “affordability is already a problem.”