What Does the NAR Case Mean to Me As a Future Seller?

The real estate industry will experience significant changes in August 2024 as a result of a recent $418 million NAR commission lawsuit settlement.

This settlement, reached after a two-year investigation into NAR’s practices, is expected to impact both home sellers and buyers because it changes how real estate agents are compensated.

In this article:

• Understanding commission changes
• Impact on home sellers
• Does this make purchasing a home cheaper or more expensive for buyers?
• Is this good or bad for consumers?
• The bottom line

Understanding commission changes

Traditionally, when selling a home, commissions are structured so that the seller pays the commission for both their agent and the buyer’s agent. This amount typically averages around 5% to 6% of the home’s sale price, split evenly between both agents.

For years, this arrangement has often benefited buyers, as they didn’t have to worry about compensating their agent out-of-pocket.

But under the new changes sellers are no longer responsible for paying both commissions, leading to separate negotiations for both parties.

Sellers will negotiate their fee with their agent as usual, and buyers will now negotiate their fee with their agent.

Additionally, listing agents are no longer allowed to include buyer agent compensation/commission when listing a home on the Multiple Listing Service (MLS).

They can, however, share this information directly with buyer agents. Likewise, commission negotiations can still take place between agents before a buyer submits their offer.

Impact on home sellers

These changes will give sellers more leeway when negotiating with their agents.

With the buyer agent’s commission no longer in the picture, a seller might be able to negotiate a lower commission rate. This can mean more profit from the sale of their home—resulting in more cash to put down on their next property.

Keep in mind, too, that before this change some buyer agents might have been reluctant to show their clients homes with lower commission rates because they would earn less money.

However, with the removal of this information from MLS listings, these agents can no longer discriminate based on compensation. This benefits sellers because their homes are more likely to be shown to all potential buyers.

Even so, there are potential drawbacks.

Under the new structure, the process might become more complicated for sellers. They’ll likely spend more time researching and negotiating with their agents to get the best deal, and some worry that this change could lead to fewer full-service agents. In which case, sellers might not get as much support during the selling process.

Does this make purchasing a home cheaper or more expensive for buyers?

These changes impact buyers too. In the past, they didn’t typically have to worry about paying their agent’s commission, as this cost was covered by the seller.

Now, buyers must mentally prepare for the possibility of paying their own agent’s commission. This, unfortunately, can make purchasing a home more expensive.

They’ll now need to budget for their agent’s commission, which can be a major obstacle—especially for first-time buyers. This will mean spending a greater chunk of their savings, and some buyers might find this harder to afford.

One potential strategy is for buyers to negotiate a lower commission rate with their agent. Likewise, instead of a percentage of the sale price, they might explore other methods of compensation, such as a flat fee or hourly rate. Getting creative can help lower their closing costs.

Buyers can also go the traditional route and simply ask the seller to still cover their agent’s commission, or they can negotiate with the seller to cover other closing costs.

The state of the housing market will likely dictate whether a seller is willing to shell out the extra cash. They might be willing to offer this incentive in a slow market or if they’re eager to sell.

Furthermore, starting August 2024, buyers will need to have a written agreement with their agent. This agreement outlines the services the agent will provide and any fees or commissions the buyer will be responsible for. It’s essential for buyers to have this agreement in place to protect their interests throughout the home buying process.

Is this good or bad for consumers?

On the positive side, sellers will have more control over commission rates with their agents. This could potentially result in lower selling costs and higher profits for sellers.

But while beneficial to sellers, lower commissions can also result in less earning potential for agents.

Another concern is the possibility of real estate agent bidding wars. Agents might feel pressure to lower their commission rates to secure clients.

For buyers, the new commission structure means possibly paying their own agent’s commission out-of-pocket. This can be challenging, especially for first-time buyers who might not have enough in savings.

The bottom line: NAR commission lawsuit

Upcoming changes in real estate commission structures will have both positive and negative consequences for home sellers and buyers.

But even though these changes will open the door to negotiation and bring potentially higher profits for sellers, they also introduce new challenges and uncertainties.

Will the quality of service offered by some agents decline or remain the same? Will there be a shift in the balance of power between buyers and sellers? Unfortunately, there’s no way to know the full impact of this change until it goes into effect.