Here’s How the Big Realtor Settlement Will Change Home Buying and Selling

In mid-March, the National Association of Realtors (NAR) reached a settlement with several groups of home sellers regarding rules on realtors’ commissions. On Tuesday, April 23, a U.S. federal judge approved the antitrust class-action settlement, which involves the NAR paying $418 million over the course of approximately four years and a significant change to how homes are sold. 

If the rules go into effect, which is expected to happen in mid-July, here’s what will happen: 

• Agents can list homes without disclosing the commission for buyer’s agents. In the past, you would need to include the commission rate to have a property featured on multiple listing services, better known as MLS. 
• Buyer’s agents need to prepare contracts. NAR will also require buyer’s agents to have written agreements with their clients before they start house-hunting. 

This all dates back to the 1990s, when the MLS cooperative compensation rule was put in place. The rule requires a commission offer (typically 5 to 6 percent) to be included in the MLS, which is then split between the seller’s agent and buyer’s agent when the sale goes through. This places a burden on the seller, who is tasked with paying both agents for their services. 

So, what does this mean for buyers and sellers, exactly? I tapped two California real estate professionals to hear their insights and better understand what sellers and buyers need to know about this settlement.

Thomas J. Story

1. First-Time Buyers Might Be at a Disadvantage

While agents will be affected, another group realtors are concerned about are first-time buyers who may not have the funds to pay the added costs for their representative. 

“It’s going to be a little bit more stressful for them,” says Lindsey Harn, a residential real estate agent and owner of Lindsey Harn group in San Luis Obispo, California. “They now have maybe been saving for the last several years just to get to the 5, 10, or 20 percent down, and now you’re going to have to navigate, ‘What if the seller’s not going to pay my agent?’ Is this going to be an added cost?’”

The next steps come down to the listing agreement, says Danielle Purcell, a real estate broker and owner of Team Laguna in Laguna Beach, California. 

“We’re going to need to figure out how to come up with a listing agreement that takes care of the commissions, because first-time buyers and other buyers aren’t going to be able to come up with the additional commission,” she says. 

Government agencies are also working to make purchasing a home more doable for first-time buyers. According to Harn, Fannie Mae and Freddie Mac recently shared that they’re going to allow the seller to credit the buyer up to 3 percent toward closing costs, and they’ll also allow the seller to credit a concession that the buyer can use to pay their agent. 

“It could be rolled into the loan or put in as a concession in the loan to try and keep the buyer from having to come up with the extra cash, which is everybody’s biggest concern,” Harn says.

The Good Brigade/Getty Images

2. You Don’t Need to Wait Until July to Make Moves

The settlement may cause some confusion and concern among sellers, buyers, and agents. However, you don’t have to pump the brakes on buying or selling. Both Purcell and Harn are recommending that their clients put their listings on the market. 

“I wouldn’t wait to sell my house if I was going to list my house for sale,” Purcell says, “Because at the end, I’m going to get market value for it and the agents are going to be given a commission.”

Harn adds that she’s telling her clients to take advantage of selling now, especially because the inventory might increase later this year. 

“I’m encouraging sellers not to wait until July, in case there is an influx, and to consider selling now while the inventory is still low, and they can still use a buyer’s agent commission to incentivize a quicker sale,” she says.

skynesher/Getty Images

3. Choosing the Best Realtor Is More Important Than Ever

Because you will likely need to commit to a buyer’s agent before looking at houses, you need to be careful about your decision. Harn says it’s best to start researching and preparing early, and to avoid signing anything until you’re sure you want to work with a realtor. 

“Talk to a couple of agents, and then really find out if they specialize in the neighborhoods and price ranges that you’re looking for, and ask for some success stories,” Harn says.

The pressure to rely on the most trusted real estate professionals can have consequences for people just starting out in the industry, too. In fact, Purcell predicts that this could put more than 25 percent of realtors out of business.

4. There Might Be More Listings in July

Sellers don’t necessarily need to wait, and that’s in part because of the anticipation that many more houses will go on the market after these rules become commonplace. 

“I think this decision could bump up inventory if everybody waits until July and thinks they’re going to save all this money in commission, which would be a good thing for buyers,” Harn says.

Thomas J. Story

5. Think of This as the ‘New Normal‘

Both Purcell and Harn say if and when these new rules are put in place, it will become their “new normal”—and one people will need to adjust to after decades of working under the previous system. 

“I honestly think things are going to settle into a new normal, where if you have a property you’re marketing to first-time buyers or entry-level buyers, most sellers are still going to want to keep the biggest pool open,” Harn says. “So I think first-time buyers might offer 2.5 percent higher than the asking price and ask for a concession, and cash buyers or buyers that are wealthier will probably offer less and then offer to pay their agent directly to save money and keep their property taxes lower.”