NEW RULES
Do they impact you?
In Effect As Of August 17, 2024
The Background
In August 2024, the process of paying commissions for home sales underwent significant changes following a class action lawsuit against the National Association of Realtors (NAR) and four major real estate brokerage firms. A Missouri jury found these entities liable for conspiring to maintain inflated commission rates, resulting in a $1.8 billion verdict against them. As part of the settlement, the NAR agreed to revise industry standards regarding commission payments and responsibilities.
For many years, the payment of real estate commissions was largely governed by the NAR’s Multiple Listing Services (MLS), which are regional platforms used across the United States. When a home seller enters into a commission agreement with their agent, the property is listed on the local MLS. Under the MLS terms, this listing acts as an offer to other agents to share the commission if they bring a buyer.
Traditionally, sellers agree to pay a commission of around 6 percent, though it can sometimes be negotiated down to 5 percent. This agreement also includes listing the property on the MLS. However, critics have long argued that the MLS system artificially inflated commission rates, as buyers had little to no ability to negotiate these costs, contributing to higher home prices.
What has changed
Beginning in August, sellers’ agents will no longer be able to offer commission splits to buyers’ agents through the MLS. Buyers who choose to work with an agent must sign a written agreement, known as a buyer/broker agreement, to pay their agent’s commission directly. However, sellers’ and buyers’ agents can still negotiate commission splits privately.
Under these new regulations, buyers will bear the responsibility of paying their agents out of pocket. This shift could prompt sellers to reconsider paying the traditional 6 percent commission, potentially leading to reduced commission offers since sellers no longer need to share proceeds with a buyer’s agent.
If a seller’s agent agrees to split the commission with a buyer’s agent, the split will likely be smaller. Consequently, some buyers may opt to navigate the home-buying process independently.
Buyers who forgo an agent will need to be well-versed in contract negotiations, procedural steps, and timelines to successfully close deals. Given that most buyers lack this expertise, buyer’s agents will remain crucial for most. Alternatively, buyers might choose to engage real estate attorneys to manage their transactions.
As sellers potentially offer lower commissions, the overall commission pool may shrink, which could push some agents out of the industry. This adjustment period is expected to take several years as agents, sellers, and buyers adapt to the new commission payment structure.
For detail information about the legal settlement and new rules, please visit: https://www.nar.realtor/the-facts