How the recent Realtor settlement could change the way Americans buy and sell homes

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A settlement announced by the National Association of Realtors on Friday, which ended its litigation with some homesellers, is expected to fundamentally change the rules around how Americans buy and sell their homes.But while the changes will be sweeping, when the $418 million settlement goes into effect in July after court approval, several aspects will remain familiar.Commissions aren’t disappearing — you’ll still need to pay a real estate agent for their work, just as you would any service provider. And the commission, which is set between an agent and the seller, will continue to be negotiable. The seller’s agent will also still be able to split the commission with the agent bringing the buyer.Here’s what the changes mean for you.How does this change the current rules?The agreement effectively will destroy the rules that many critics say are among the reasons driving housing prices artificially higher. The new rules are likely to be fairer for home buyers and sellers who’ve been saddled with the most unaffordable housing market in a generation.One new rule prohibits agents’ compensation from being included on listings placed on local centralized portals known as multiple listing services, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.The changes are expected to reduce commissions by 25% to 50%, according to TD Cowan, a financial services research firm. They also may broaden the way brokerages operate from offering flat-rate commissions to providing pared-down service at a discount or becoming white-glove — we do it all — boutique brokerages.I want to buy a home. Will I pay my own agent now?Homebuyers haven’t typically had to pay their agents out of pocket. While that’s now more likely, it’s still not required.According to the settlement, which still needs to be approved by the court, the current standard compensation system — in which a seller pays the commission of their own broker as well as the broker who brings a buyer — is still allowed.Just like it has always been, if you find a home to buy where the seller is offering to split a commission with the buyer’s broker, you don’t need to pay your broker. While this relieves already-burdened homebuyers from having to pay upfront costs and can make it feel like they’re getting the agent’s service “free,” the cost is typically factored in to the home’s price, making homebuying more expensive.However, now, sellers and their agents are no longer required to offer compensation to a buyer’s agent, and they’re prohibited from listing any compensation information at all on the MLS.This means buyers will need to negotiate their own agreement with their agent. And MLS participants working with buyers will be required to sign a buyer’s representation agreement.This agreement will specify the work the buyer’s agent will do and how they will get paid. The agreement may need to have wording that says that if a seller doesn’t agree to pay the buyer’s agent commission, the buyer is on the hook for that money.NAR has long argued that asking buyers to pay for their own broker or agent makes homeownership harder for first time homebuyers typically already strapped for cash. This rule could make buying a home feel more expensive for some people who may opt out of hiring an agent or even buying a home at all.I want to sell my home. Do I still need to pay a commission?Yes. But once the changes go into effect you will not be required to provide a commission to the buyer’s agent, as has been the case on some MLS systems.Commissions are still negotiable, as they have been since the US Supreme Court put a stop to NAR’s rate-setting in the 1950s, but now negotiating the commission could become a much more important part of your home selling process.As a seller you can still sell your home with the standard commission structure of splitting what you pay between your broker and the buyer’s broker. The commonly held standard has been 6%, usually split evenly, but in many places the standard is lower.But, because of the new rules, as a seller you can list your home on the MLS without offering to split the commission with a buyer’s broker. It had been broadly required that sellers offer compensation to the buyer’s broker – even if it was one cent.In addition, the settlement prohibits disclosing the commission on the MLS at all.Eliminating the disclosure of a commission on the MLS removes the ability for agents to only look at homes that provide high commissions.The NAR has long said that offers of compensation by sellers to buyer’s brokers make hiring a buyer’s broker more accessible and affordable for homebuyers unable to add thousands of dollars up front to an already-expensive endeavor.If you see paying a 6% fee as the cost of doing business and getting the home seen and would like to market your home by offering to pay the buyer’s broker fee – as is typical now – you can still do that. Or you could offer 3% total with a smaller split between the two. However, that information is no longer allowed to appear on the MLS and will need to be communicated to buyers’ brokers and agents separately.

A settlement announced by the National Association of Realtors on Friday, which ended its litigation with some homesellers, is expected to fundamentally change the rules around how Americans buy and sell their homes.

But while the changes will be sweeping, when the $418 million settlement goes into effect in July after court approval, several aspects will remain familiar.

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Commissions aren’t disappearing — you’ll still need to pay a real estate agent for their work, just as you would any service provider. And the commission, which is set between an agent and the seller, will continue to be negotiable. The seller’s agent will also still be able to split the commission with the agent bringing the buyer.

Here’s what the changes mean for you.

How does this change the current rules?

The agreement effectively will destroy the rules that many critics say are among the reasons driving housing prices artificially higher. The new rules are likely to be fairer for home buyers and sellers who’ve been saddled with the most unaffordable housing market in a generation.

One new rule prohibits agents’ compensation from being included on listings placed on local centralized portals known as multiple listing services, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.

The changes are expected to reduce commissions by 25% to 50%, according to TD Cowan, a financial services research firm. They also may broaden the way brokerages operate from offering flat-rate commissions to providing pared-down service at a discount or becoming white-glove — we do it all — boutique brokerages.

I want to buy a home. Will I pay my own agent now?

Homebuyers haven’t typically had to pay their agents out of pocket. While that’s now more likely, it’s still not required.

According to the settlement, which still needs to be approved by the court, the current standard compensation system — in which a seller pays the commission of their own broker as well as the broker who brings a buyer — is still allowed.

Just like it has always been, if you find a home to buy where the seller is offering to split a commission with the buyer’s broker, you don’t need to pay your broker. While this relieves already-burdened homebuyers from having to pay upfront costs and can make it feel like they’re getting the agent’s service “free,” the cost is typically factored in to the home’s price, making homebuying more expensive.

However, now, sellers and their agents are no longer required to offer compensation to a buyer’s agent, and they’re prohibited from listing any compensation information at all on the MLS.

This means buyers will need to negotiate their own agreement with their agent. And MLS participants working with buyers will be required to sign a buyer’s representation agreement.

This agreement will specify the work the buyer’s agent will do and how they will get paid. The agreement may need to have wording that says that if a seller doesn’t agree to pay the buyer’s agent commission, the buyer is on the hook for that money.

NAR has long argued that asking buyers to pay for their own broker or agent makes homeownership harder for first time homebuyers typically already strapped for cash. This rule could make buying a home feel more expensive for some people who may opt out of hiring an agent or even buying a home at all.

I want to sell my home. Do I still need to pay a commission?

Yes. But once the changes go into effect you will not be required to provide a commission to the buyer’s agent, as has been the case on some MLS systems.

Commissions are still negotiable, as they have been since the US Supreme Court put a stop to NAR’s rate-setting in the 1950s, but now negotiating the commission could become a much more important part of your home selling process.

As a seller you can still sell your home with the standard commission structure of splitting what you pay between your broker and the buyer’s broker. The commonly held standard has been 6%, usually split evenly, but in many places the standard is lower.

But, because of the new rules, as a seller you can list your home on the MLS without offering to split the commission with a buyer’s broker. It had been broadly required that sellers offer compensation to the buyer’s broker – even if it was one cent.

In addition, the settlement prohibits disclosing the commission on the MLS at all.

Eliminating the disclosure of a commission on the MLS removes the ability for agents to only look at homes that provide high commissions.

The NAR has long said that offers of compensation by sellers to buyer’s brokers make hiring a buyer’s broker more accessible and affordable for homebuyers unable to add thousands of dollars up front to an already-expensive endeavor.

If you see paying a 6% fee as the cost of doing business and getting the home seen and would like to market your home by offering to pay the buyer’s broker fee – as is typical now – you can still do that. Or you could offer 3% total with a smaller split between the two. However, that information is no longer allowed to appear on the MLS and will need to be communicated to buyers’ brokers and agents separately.