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The Impact of the NAR Settlement on Real Estate Commissions and Home Prices
Big news for anyone involved in buying or selling a home! The National Association of Realtors (NAR) has just settled a lawsuit for over $418 million, a case centered around alleged price fixing and collusion. This settlement is set to change the traditional real estate model where sellers typically cover the commission for both their own and the buyer’s brokers.
From now on, sellers won’t be obligated to offer commissions to the buyer’s agents. This change is expected to shake up commission structures significantly, benefiting both buyers and sellers by allowing more room to negotiate these fees. Additionally, it should cut down on the practice of “steering,” where agents push clients towards more expensive properties to boost their own commissions.
Despite the settlement, the NAR hasn’t admitted any wrongdoing. However, the implications for the real estate market are considerable, potentially leading to lower commission rates and, consequently, possibly lower home prices, enhancing market efficiency and transaction volume.
Why the Traditional Commission Model Didn’t Make Sense
My own experience in real estate highlights why the traditional model can be problematic. I once had to negotiate a $25,000 “repair” during escrow, which should have only cost between $2,000 and $5,000. It was clear to me that this was a tactic to lower the sale price rather than a necessary expense, leading me to question why I was paying a 2.5% commission to a buyer’s agent who seemed more interested in reducing the price than facilitating the deal.
Future of Real Estate Commissions
Experts like TD Cowen Insights predict a dramatic drop in commission rates, potentially halving them. This adjustment could see standard rates fall from about 6% to between 3% and 4.5%. Such changes could happen sooner than expected, thanks to the quick settlement of the lawsuit, hinting at an immediate impact on commission rates.
Even before this settlement, there were signs of change. For instance, a real estate team once offered to represent my sale for a total commission of 3.5%, with 1% for themselves and 2.5% for the buyer’s agent, a move that already deviated from the norm.
Negotiating New Commission Rates
Post-settlement, sellers should aim to pay no more than 1.5% commission to their listing agents. What the buyer’s agent gets will be up to the buyer and their agent to negotiate. While some resistance from agents is likely, remember, everything in real estate is up for negotiation.
No More Mandatory Payments from Sellers to Buyer’s Agents
The misconception that buyers must now pay commissions out of pocket is not entirely accurate. More likely, buyer’s agents will either earn a fixed fee or a reduced commission percentage set by the market. It’s crucial for buyers to consider what they are willing to pay their agents, based on the value they receive.
Significance of Signing a Buyer’s Agent Contract
Post-settlement, it will become more common for buyers to sign a contract with their agents upfront, which will help protect agents from potential disloyalty and ensure they are compensated for their time and effort.
Role of a Buyer’s Agent
Buyer’s agents still play a crucial role, especially for first-time buyers or those unfamiliar with the market. They help in finding the right property, negotiating deals, and managing the buying process, which can be invaluable.
Conclusion: A Win for Consumers
This settlement marks a significant win for consumers, potentially leading to considerable savings in commission fees and a more competitive and transparent real estate market. While it might mean adjustments for real estate professionals, for consumers, it could lead to better service and more negotiable fees, reflecting the true value agents provide.
