A settlement announced by the National Association of Realtors on Friday, which ended its litigation with some homesellers, is expected to fundamentally change the rules around how Americans buy and sell their homes.
But while the changes will be sweeping, when the $418 million settlement goes into effect in July after court approval, several aspects will remain familiar.
Commissions aren’t disappearing — you’ll still need to pay a real estate agent for their work, just as you would any service provider. And the commission, which is set between an agent and the seller, will continue to be negotiable. The seller’s agent will also still be able to split the commission with the agent bringing the buyer.
Here’s what the changes mean for you.
The agreement effectively will destroy the rules that many critics say are among the reasons driving housing prices artificially higher. The new rules are likely to be fairer for home buyers and sellers who’ve been saddled with the most unaffordable housing market in a generation.
One new rule prohibits agents’ compensation from being included on listings placed on local centralized portals known as multiple listing services, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.
The changes are expected to reduce commissions by 25% to 50%, according to TD Cowan, a financial services research firm. They also may broaden the way brokerages operate from offering flat-rate commissions to providing pared-down service at a discount or becoming white-glove — we do it all — boutique brokerages.
Homebuyers haven’t typically had to pay their agents out of pocket. While that’s now more likely, it’s still not required.
According to the settlement, which still needs to be approved by the court, the current standard compensation system — in which a seller pays the commission of their own broker as well as the broker who brings a buyer — is still allowed.
Just like it has always been, if you find a home to buy where the seller is offering to split a commission with the buyer’s broker, you don’t need to pay your broker. While this relieves already-burdened homebuyers from having to pay upfront costs and can make it feel like they’re getting the agent’s service “free,” the cost is typically factored in to the home’s price, making homebuying more expensive.
However, now, sellers and their agents are no longer required to offer compensation to a buyer’s agent, and they’re prohibited from listing any compensation information at all on the MLS.
This means buyers will need to negotiate their own agreement with their agent. And MLS participants working with buyers will be required to sign a buyer’s representation agreement.
This agreement will specify the work the buyer’s agent will do and how they will get paid. The agreement may need to have wording that says that if a seller doesn’t agree to pay the buyer’s agent commission, the buyer is on the hook for that money.
NAR has long argued that asking buyers to pay for their own broker or agent makes homeownership harder for first time homebuyers typically already strapped for cash. This rule could make buying a home feel more expensive for some people who may opt out of hiring an agent or even buying a home at all.
This is a developing story and will be updated.
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