The Truth About the NAR Settlements

The Question –

I recently talked with a home owner about listing their property for them. They asked if my commission would be lower “now that the NAR settlement had been announced”.

I did my best to explain what the situation was but I don’t think I did very well. I decided I would do better if I wrote it down, so here we are.

The Current Process –

All real estate deals are negotiated on a case by case basis, so nothing is the same across all deals.

In my example below, it’s easier to understand if I just use 6% as the total commission, with 3% going to each agent, even though it can be different.

The current process is that the seller agrees to pay the seller’s agent the total commission, 6%.

The seller’s agent agrees to pay the buyer’s agent half of the total commission, 3%, and keeps 3%.

They display the amount of commission offered to the buyer’s agent in the MLS for all agents to see.

MLS stands for “Multiple Listing Service”. It’s where agents are required to list properties, so all other agents have a fair chance to bring a buyer.

The NAR Lawsuits –

The National Association of Realtors, or NAR, has been sued by a lot of people. On March 15, 2024, NAR announced that they have a proposed settlement for their lawsuits.

Commissions are currently only negotiable between the seller and the seller’s agent. The lawsuits are because some buyers wanted to negotiate their agent’s commission themselves.

NAR agrees to pay $418M in fines, and does not admit guilt.

It also requires MLSs to not display any commission offered to the buyer’s agent. MLSs are currently required to display that info.

The settlement will not be approved by the court until at least July. Nothing has legally changed yet.

The Lies –

Misinformation and confusion have run rampant.

CNN said “The 6% commission, a standard in home purchase transactions, is no more.”

President Biden said “the National Association of Realtors agreed for the first time that Americans can negotiate lower commissions when they buy or sell their home. On a typical home purchase, that alone could save folks an average of $10,000 on the sale or purchase.”

These two statements are NOT true.

The Truth –

Commissions, like everything else in life, have always been negotiable. Just ask. You’d be surprised.

I personally had a deal, last year, where I had to agree to reduce my commission, as requested by the seller, before they would agree to my buyer’s offer. I agreed to do that in the best interest of my client.

I know of a property listed right now with a 3% total commission, and another one with a 10% total commission. Those are not a “standard” 6%.

Market forces, competition among agents, and normal economic forces, determine the commission rate, not NAR, not the settlement, and certainly not the government.

The Future –

The buyer’s agent will still have to receive a commission somehow, or they won’t show your house. If you want to sell your house, you’ll have to offer the buyer’s agent compensation in some form.

If the MLS no longer guarantees the buyer’s agent that they’ll get paid, how do they get paid?

Here are some possibilities:

Maybe agents who work with buyers enter into written buyer representation agreements to guarantee they would get paid by someone, if not the seller, then the buyer, which could impact purchase offers.

Maybe a buyer’s agent can pursue commission offers through negotiation directly with the seller, and have that written into the purchase contract.

Maybe sellers can offer “concessions” to the buyers using the MLS, who can then use that credit to pay their agent a commission, but there are some legal nuances to doing it this way.

Maybe buyers who have the means to do so, could pay commissions directly to their agent.

Maybe sellers could negotiate commissions paid directly to the buyer’s agent, which will be legal, as long as it happens outside the MLS.

Maybe the buyer pays 103% of the purchase price, so the seller can afford to pay the buyer’s agent 3%.

Maybe the buyer pays 97% of the purchase price, and pays for the commission themselves. If the buyer has to pay 3% for their own agent’s commission, that 3% comes out of the amount they’re paying the seller. Buyer’s agents need to be paid.

The Consequences –

Instead of only negotiating the property purchase price, now we will have to negotiate the buyer’s agent’s commission as well.

We all have to agree, and we do it all behind closed doors. There are no rules.

If that compensation is not displayed in the MLS, it can be anything the seller wants it to be, or will agree to, or whatever can be negotiated with the buyer.

The Strategy –

When there’s a massive change like this, chaos ensues. No one really knows what will happen.

Again, it’s important to remember that the only thing that changes, if the settlement is approved, is the process for paying a commission. It does not change the amount of the commissions paid.

Then, the only way that your costs go down is if you or your agent can negotiate a better deal for you.

To protect your interests, you’ll need a strong agent, with the experience to know the options, and with the negotiation skills to save you money.

Call me.