In March 2024, the National Association of Realtors® (NAR) settled a lawsuit regarding agent compensation. This led to enaction of some key changes for the real estate industry, so let’s talk about the facts and how these may impact home sellers and buyers.
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 has changed?
As of August 2024, the settlement:
Prohibits MLS (multiple listing service) participants from communicating offers of compensation on the MLS. This means split commission arrangements between sellers’ and buyers’ agents will no longer appear in MLS descriptions, but they can still be discussed and negotiated off-MLS.
Requires agents to enter into written agreements with buyers before showing them a home. These agreements help buyers understand what services and value the agent will provide, and for how much.
How are agents now paid?
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 no longer automatically pay both the listing and buyer’s agent commissions (though that is still an option). Agent compensation could be in the form of a commission or flat fee. In short, buyers and sellers have more flexibility to negotiate how their agents are paid.
What does this mean for buyers?
Buyers may negotiate both the commission they will pay and how they will pay it. For example, sellers and their listing agents may still offer to split the commission with the buyer’s agent or cover their fees through seller concessions. Alternatively, buyers may be responsible for paying their agent out of pocket. It is important for buyers to discuss up-front how their agent will be paid so it can be outlined in the written agreement that is required between buyers and their agents.
What does this mean for sellers?
Sellers may still negotiate the commission they pay, which may help them secure a lower cost. While they can agree to pay commission for the buyer's agent, it's not required.