The National Association of Realtors® (NAR) recently settled a lawsuit regarding agent compensation. This is likely to result in some key changes for the real estate industry, so let’s talk about the facts and what this change might mean for you.

What was the lawsuit about?

The settlement addresses claims brought by home sellers against NAR related to how real estate agent commissions are paid. The plaintiffs argued that the rules for setting agent commissions were anti-competitive and resulted in higher prices for consumers.  

What’s going to change?

The settlement:

1. Prohibits MLS (multiple listing service) participants from communicating offers of compensation on the MLS. This means the amount the buyer's agent will make from a sale will no longer appear in MLS descriptions, but it can still be discussed and negotiated off-MLS.
2. Requires agents to enter into written agreements with buyers before showing them a home. These agreements can help buyers understand what services and value the agent will provide, and for how much.

These changes are expected to go into effect in August 2024.

How will agents be paid going forward?

Traditionally, sellers’ and buyers’ agents were paid by splitting the commission on a home. While there has never been a “set” commission, the typical amount has been around 5% to 6%, which was usually paid by the seller.

Agent commissions have now been “decoupled,” meaning that sellers will no longer automatically pay both the listing and buyer’s agent commissions (though that is still an option). In short, buyers and sellers will have more flexibility to negotiate how their agent will be paid.

What does this mean for buyers?

Buyers can negotiate both the commission they will pay and how they will pay it. For example, sellers and their listing agents can still offer to split the commission with the buyer’s agent or cover their fees through seller concessions. Alternatively, buyers could be responsible for paying their agent out of pocket, so they should discuss up-front how their agent will be paid. This should be outlined in the written agreement that will be required between buyers and their agents.

What does this mean for sellers?

Sellers can still negotiate the commission they pay, and they may be able to secure a lower cost. While they can agree to pay commission for the buyer's agent, it's not required.

The bottom line is that buyers and sellers will still compensate agents for the many services they provide, and these fees will be negotiable, like always.