Real Estate

5 Things Considered: The Impact of the National Association of Realtors’ Historic $418 Million Dollar Settlement on Selling or Buying Property

On March 15, 2024, the National Association of Realtors (“NAR”) announced a settlement, pending court approval, that may reduce realtor commissions and potentially drop home prices. Below are 5 things to consider after this unprecedented settlement.

  1. What was the dispute concerning the NAR litigation and what was the outcome?
    • The crux of the lawsuit alleged that the NAR – which represents over one million realtors in the U.S. – and two brokerages were liable for conspiring to maintain artificially high agent commissions.  The unprecedented $418 million settlement eliminates rules requiring sellers to compensate buyers’ agents and prohibits offers of compensation on the Multiple Listing Services (MLS), which might impact the traditional 6% commission which sellers typically paid.  In other words, the 6% commission in real estate transactions is no longer the standard.
  2. How does a realtor’s commission typically work?
    • Typically, in a real estate transaction, realtors are paid a commission based on a percentage of the final sale price of a property. Historically, the commission rates have been in or around 6% of the sale price, and the seller compensates both the listing agent and the buyers’ agent. For example, in California, the average home value is approximately $765,200.00. If a home sells for this price, the realtors’ 6% commission will be over $45,000.00, which is typically split evenly between both agents.
  3. How can this potentially change the sales process?
    • Now that there is no longer a blanket obligation on the seller to pay both commissions, there’s likely more room to negotiate the commission. This may significantly impact commissions throughout the housing market. However, it’s hard to predict what the new “typical” commission structure and percentages will be.
  4. How can this settlement impact home prices?
    • Because homeowners are no longer obligated to pay both realtors’ commissions, there’s more room to negotiate the commission terms, which can indirectly affect the sale price. Sellers may be able to negotiate and pay lower commission rates. In turn, due to reduced selling costs, sellers may be willing to accept a lower price for their property, which may result in home prices dropping. Although this may be one possible outcome, it’s impossible to tell how the housing market will actually react.  Alternatively, sellers may opt not to adjust the sale price and instead retain the savings from lower commissions. Consequently, home prices could remain unchanged even with the absence of the seller’s obligation to pay the buyer’s agent.
  5. When will the commission changes take effect?
    • The new commission changes will take effect in July 2024. It remains to be seen how the settlement will play out in the market. Parties may wait to buy or sell a property until the new rule is in effect.    Sellers may consider waiting because they may potentially retain a larger chunk of the sales price, at the expense of the buyer having to compensate their own real estate agent. However, keep in mind that buyers may end up offering lower purchase prices if they will have to allocate part of their budget to compensate their own agent.

Should you have additional questions or seek a no cost consultation on this subject or other real estate or business issues, please contact the real estate lawyers at Bezdik Kassab Law Group.

“5 Things Considered” is Bezdik Kassab Law Group’s regular publication of legal material and analysis to assist the reader in considering various legal issue and topics. For additional information, please contact Bezdik Kassab Law Group for a no-cost consultation.

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