The National Association of Realtors recently announced a settlement that will significantly impact how Americans buy and sell their homes. The $418 million settlement with a group of homebuyers is expected to take effect sometime around July 2024, pending a judge’s approval.
It would transform several rules and guidelines set by the NAR that critics say have kept housing prices artificially inflated. While the settlement is still in the works, here’s a look into what it holds for the future of buying and selling houses.
How Does This Change the Current Rules
Those regular 6% commissions split between the buyer’s and seller’s brokers will no longer be the norm. Agent commissions are expected to drop, and in some cases, drop significantly because they’ll be more competitive and negotiable.
Sellers will have the freedom to shop around for better rates. Broker tactics that critics say are anticompetitive, like the rule where sellers’ agents set compensation for buyers’ agents, will be prohibited. This will give more options to buyers and sellers. Also, buyers may have to pay their broker directly in the future, which could be challenging for buyers accustomed to financing that commission as part of their mortgage. However, some buyers could choose to forgo using a broker altogether.
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There Will Be No More 6% Commission
Americans have long paid a standard commission of about 6% when they sell a house. This commission is split between the seller and the buyer’s broker. Now, here’s the thing: the National Association of Realtors and its 1.5 million agents say that these fees are negotiable.
Some of the rules set by the NAR have kept these commissions much higher than in other countries. For example, they can average around 1% or 2% in some places. After this settlement, those commissions will be very competitive. This means brokers can advertise their rates to sellers, and people can shop around for sweet bargains. And get this: Real estate commissions are expected to drop by 25% to 50% because of the new rules, according to TD Cowen Insights.
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Buyers May Have to Pay Their Agents
Without those guidelines that say buyers’ and sellers’ brokers have to split commissions evenly, things might change a bit for homebuyers. They might have to switch up how they pay their agents. In the past, the 6% commission (3% for the seller’s broker and 3% for the buyer’s agent) was added to the overall cost of the home. Buyers could pay it off over decades in their mortgages. But now, with this settlement, things might change a bit.
Buyers might pay their agents in new ways, like a flat fee or something. A new rule will require buyers’ brokers to enter into written agreements with their buyers. It’s all about transparency and making sure everyone’s on the same page.
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New Rules for Brokers
One rule that irritates the NAR critics is finally going away. The rule says sellers’ brokers must advertise the commission they’d pay to brokers’ agents. However, the NAR says brokers can’t advertise that compensation anymore.
According to affordable housing advocates, that rule had some bad outcomes for buyers. First, it kept those commissions high. It also made buyers’ brokers push more expensive homes on buyers. Why? Because the higher the price, the bigger their payout. It’s like they were chasing the money instead of looking out for the buyers.
This Might Make Buying a House Cheaper
One of the most critical questions is, Will buying a home get cheaper? Industry experts almost universally expect the answer to be yes. As brokers grow competitive on rates, commissions could fall significantly. For the median-priced American home for sale, $387,000, sellers are paying more than $23,000 in brokerage fees. Those costs are passed on to the buyer, boosting the price of homes in America. According to an analysis from TD Cowen Insights, that fee could fall by around $6,000 to $12,000.
That will save people a lot of money. Americans pay around $100 billion in commission fees each year, and homebuyers could save a quarter to half of that once the settlement is finalized, according to Stephen Brobeck, a senior fellow at the Consumer Federation of America, an umbrella group of nonprofit consumer organizations.
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