The National Association of Realtors (NAR) recently settled the antitrust lawsuit in a landmark decision reverberating through the real estate industry. This settlement addresses long-standing issues related to transparency, competition, and fees within the real estate market. The courts and the Department of Justice still need to approve the settlement.
The root of the problem is the NAR Policy, which, through its members and affiliate Multiple Listing Services (MLS), requires sellers to pay the fee to the Buyer’s Agent.
The settlement, subject to court and Department of Justice (DOJ) approval, makes clear that NAR continues denying any wrongdoing in connection with the MLS cooperative compensation model rule (MLS Model Rule), introduced in the 1990s in response to consumer protection advocates’ calls for buyer representation. Some of the new policies are scheduled to be implemented during the summer.
The settlement will have a lasting effect on the residential real estate market, ranging from changes in industry practices to shifts in market dynamics and consumer benefits.
What does this mean for you? Whether buying or selling a home, this settlement will affect you.
Here’s what you need to know.
Transparency: One key outcome and the most significant consumer win of the NAR settlement is enhanced transparency for buyers and sellers. Sellers are no longer obligated to compensate the Buyer’s Agent. Consumers can make more informed decisions with more precise information about commission structures and the services they are paying for. Compensation to the Buyer’s or Seller’s Agent will no longer be displayed on the Multiple Listing Service (MLS) listing.
Commission transparency allows consumers to comprehend better how much they pay for real estate services and what they entail. This transparency can help consumers make more informed decisions when buying or selling property, potentially leading to cost savings and more equitable transactions.
Buyers and Sellers can more effectively compare prices between different real estate agents or firms by having more conversations about commission structure and fee transparency. This fosters competition within the industry, which may lead to lower costs and improved service quality as agents strive to differentiate themselves.
Home Prices: Market forces like limited inventory and steep mortgage rates continue to be the biggest obstacles for prospective homebuyers, and those won’t magically disappear. Still, experts say the agreement should increase price competition and highlight the lack of transparency in the real estate industry. Pressure to reduce housing costs and relieve the financial burden on consumers is high.
The NAR settlement could result in sellers paying cheaper commissions, which might compel more homeowners to list their homes. It will take time for the market to adapt to new norms, and nothing in the housing market exists in a vacuum, so don’t expect an immediate downward pressure on home prices.
Sellers: The Seller is no longer obligated to pay the Buyer’s Agent. Therefore, the fees typically charged to the Seller could be reduced by as much as 50%. The reduction amount is subject to negotiation between the Seller and the listing agent.
The Seller or Seller’s Agent can offer the Buyer’s Agent commission to entice the Buyer’s Agent to bring their buyers to Open Houses and tour the property.
Buyers: A Buyer’s Agent agreement is now mandatory, and buyers will have more precise insights into how commissions are distributed and what they’re paying for. This transparency will empower consumers to make more informed decisions.
The benefits of having a buyer’s agent when purchasing a home include access to expertise, assistance with negotiations and paperwork, a professional network, dedicated representation, and peace of mind during a complex and daunting process.
The Buyer’s Agent can be compensated in three possible ways.
The Seller can pay the Buyer’s Agent.
The Buyer can Pay the Buyer’s Agent.
The Buyer & Seller can Pay the Buyer’s Agent.
Fees: Changes in commission structures could impact the overall cost of buying or selling a home. Typically, real estate commissions are split between Buyer and Seller agents. If these commissions are negotiated or regulated differently, it could affect the fees buyers and sellers ultimately pay.
Commission structure changes could impact the services available to buyers and sellers. If commissions decrease, some agents may offer fewer services or reduce the support they provide to clients, as the Redfin model is known for.
Mortgages:
FHA, Fannie Mae, Freddie Mac, VA
The settlement raised several questions regarding access to mortgages and the ability to finance agent commissions. Under the settlement, buyers can still get financing from Fannie Mae, Freddie Mac, and the FHA. However, none of these agencies will currently allow the Buyer to finance a commission on the mortgage. The VA still needs to address whether it will change its requirement to prohibit VA buyers from paying the commission.
Bank Financing: Financing commissions is not feasible under the current residential mortgage finance system structure, and there needs to be a straightforward short-term legislative or regulatory fix. The regulators and Congress would need to change several rules that make up the foundation of mortgage finance.
Summary: The NAR settlement represents a pivotal moment in the real estate industry that could reshape market dynamics for years. The settlement benefits buyers and sellers by fostering a more transparent, competitive, and consumer-friendly marketplace and challenges professional real estate agents to elevate their practices.
As the new guidelines are implemented and put into practice, all stakeholders in the real estate ecosystem need to stay informed and adaptable. With 50-plus years of experience, the Hickman-Coen Home Team has cultivated an unparalleled depth of expertise, a robust network of industry connections, and a steadfast commitment to delivering exceptional service and results for our buyers, sellers, tenants and landlords.
For buyers & sellers, this means who you choose to represent you through the home-buying and selling process becomes much more critical.
Making the right choice on representation, asking the right questions, and seeking clarity on fees and services can help you get the most out of the process and help you reach your goals and dreams.
Don’t hesitate to text or call Karen Hickman at 617-821-1665 or Helen Coen at 617-416-8173 with any questions.