Impact of the Realtors' Settlement on the Home Buying and Selling Process

The seismic settlement announced by the National Association of Realtors earlier this month has not yet been approved, but it is already causing a stir in the real estate industry.

MIAMI, FLORIDA - MARCH 15: In an aerial view, homes sit on lots in a residential neighborhood on March 15, 2024, in Miami, Florida. The National Association of Realtors announced that it had reached a nationwide settlement of claims that the industry had conspired to keep agent commissions high. As part of the settlement, the National Association of Realtors did not admit wrongdoing but agreed to pay $418 million over the next four years. (Photo by Joe Raedle/Getty Images)

In Miami, Florida on March 15, 2024, aerial view shows homes on lots in a residential neighborhood. The National Association of Realtors recently settled claims nationwide, alleging the industry conspired to keep agent commissions high. As part of the settlement, the association agreed to pay $418 million over the next four years. It's important to note that the National Association of Realtors did not admit any wrongdoing.

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The anticipation of a future settlement has already influenced the behavior of some Americans in the real estate market. Some potential homebuyers have expressed their intention to resume their search for a new home once the new rules are implemented, hoping to find more affordable prices. On the other hand, some homeowners are not waiting for the new rules to come into effect in July before adjusting the commission they offer to buyers' agents, with some even considering lowering or eliminating it altogether.

According to housing experts, the $418 million settlement is expected to significantly disrupt the current real estate business model, where home sellers traditionally pay both their own agent and the buyers' agent. Critics argue that this practice has contributed to inflated housing prices.

If approved by a judge, the settlement comes with new rules for Realtors.

“This is unchartered territory,” said Debra Dobbs, a Realtor in Chicago, of the potential new rules.

Potential for lower homebuying costs

The new rules could help lower home prices, experts say.

That’s what Jeremy Cannon, a 34-year-old teacher in Corona, California, hopes.

Last year, Cannon and his wife tried to buy their first home, putting in offers for multiple properties.

Cannon shared that all their offers were rejected because others were bidding higher. They were already offering above the asking price for every place they liked. Feeling discouraged, Cannon decided to put his dream of owning a home on hold.

However, Cannon felt hopeful when he learned about the new rules set by the NAR settlement. These rules could possibly help him overcome the major obstacle he faced - the high cost of housing.

Sales commissions, typically split between a buyers' agent and the listing agent, generally range from 5% to 6% of the home's selling price. In the United States, the median home price is $417,000, so the average seller might end up paying over $25,000 in brokerage fees.

Several groups of sellers filed lawsuits against the NAR, claiming that this practice violated antitrust laws.

Sellers’ agents will no longer have to share their commission with buyers’ agents under the proposed settlement terms. This change will separate commissions from home prices and potentially create a more competitive housing market.

Some experts think that commission costs are included in home listing prices. If commissions are reduced, it could lead to lower home prices.

Homes in Aldie, Virginia, US, on Tuesday, Feb. 20, 2024.

Homes in Aldie, Virginia, US, on Tuesday, Feb. 20, 2024.

Nathan Howard/Bloomberg/Getty Images

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“I think it could be helpful,” Cannon said. “I hope it might be cheaper and bring the prices of houses down more.”

Cannon and others looking to buy a home are hoping for a price drop soon. The median sales price of a new house has increased by 21% since January 2020, according to census data. As a result, Cannon plans to resume his home search this summer.

Agents are now required to have written agreements with their buyers under the new rules. Some agents are considering including a provision stating that if a seller refuses to pay their commission, the buyer will be responsible for covering that cost.

Cannon mentioned that he would be open to paying for an agent out of his own pocket if purchasing a home becomes more affordable, as long as the agent prioritizes his best interests.

Matt Hanley, a 49-year-old insurance worker from Minnesota, has been living in his current home since 2007. Recently, he experienced the process of buying a new home and had to brush up on real estate transactions.

“We were confused,” he said. “I’m like ‘wow, I’m surprised the seller has to pay my agent’s commission.’ It seemed like a conflict of interest.”

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Hanley had originally planned to list his home in April. However, after the NAR settlement announcement, he decided to make a change. Instead of offering a commission to be split between his agent and the buyers' agent, he asked his agent to write "0%—negotiable" as the buyers' agent commission on his home's listing page.

Hanley expressed his impatience, stating, "Why wait for the settlement? This is common knowledge now." He is determined to position himself at the forefront of this trend.

However, Hanley's actions may be premature. The upcoming regulations will no longer allow agents' compensation to be displayed on centralized listing portals. Critics argue that this practice encouraged agents to promote pricier properties. Despite this change, buyers' agents can still see that Hanley is not offering compensation, which may discourage them from showing his home to potential clients.

Hanley remains optimistic about potential buyers considering his home, despite the need to pay the realtor fees themselves. He highlighted the favorable conditions in his market as a contributing factor.

"We have a lot working in our favor. With limited inventory in our area and selling during a peak time, we decided to give it a shot," he explained. Hanley believes that if someone truly desires the property, they will find a way to cover the buyers' fee.

“They should be reporting to their agents, we should be reporting to ours,” he added.

‘It will take more than just a ruling’

Mariya Letdin, an associate professor of business at Florida State University, believes that the recent settlement has brought attention to the importance of negotiating rights for individuals. Letdin also acknowledges that there is a possibility that the current situation may remain unchanged.

According to Letdin, it is ultimately up to consumers, whether they are sellers or buyers, to popularize the practice of negotiation. She emphasizes that it will require more than just a legal decision for this change to occur. Letdin stresses the importance of consumers advocating for themselves and actively participating in negotiations rather than being passive observers.

“They now have a legally protected voice, and they should use it if we want to see change happen,” Letdin said.

Editor's P/S:

The settlement announced by the National Association of Realtors (NAR) has stirred the real estate industry, with potential homebuyers and homeowners eagerly anticipating its impact. The new rules, which will separate commissions from home prices, have the potential to lower homebuying costs and create a more competitive housing market. However, as experts caution, the settlement is not a magic bullet and will require active participation from consumers to negotiate and advocate for their interests.

The settlement highlights the importance of transparency and competition in the real estate industry. Critics have long argued that the traditional practice of home sellers paying both their own agent and the buyer's agent has contributed to inflated housing prices. By separating commissions, the new rules aim to address this issue and empower consumers with more negotiating power. It remains to be seen how the settlement will play out in practice, but it has certainly sparked a conversation about the future of homeownership and the role of real estate agents.