Massive Realtor Lawsuit Settlement Will Change How Homes Are Bought and Sold

Homebuyers and sellers could catch a break this spring thanks to a new lawsuit settlement that promises to upend a decades-old real estate commissions system.

The National Association of Realtors (NAR), one of the largest real estate trade associations, agreed to settle a series of lawsuits centered on who should pay commissions when a home is sold. As part of today’s agreement, NAR agreed to pay $418 million in damages over four years.

In addition to the payout, NAR agreed to change the cooperative compensation model rule, which required agents using the multiple listing system, or MLS, to include the offer of a buyer’s agent commission on home listings.

The main takeaway is that buyers and sellers will have more freedom concerning decisions about commissions. As a result, the standard 6% real estate commission could disappear, and both buyers and sellers may end up saving money in the transaction. The agreement, if approved, is set to go into effect in mid-July.

Last October, a legal decision in a lawsuit known as Sitzer/Burnett sent shock waves through the real estate industry. A jury decided that commission sharing — a common practice among real estate agents — unnecessarily increased the costs for buyers and sellers in the transaction. The plaintiffs in that case were awarded nearly $2 billion in damages.

Today’s settlement covers all the lawsuits that NAR and most of its members are involved in, including Sitzer/Burnett.

What does NAR settlement mean for homebuyers and sellers?

The part of the settlement that has the most impact on buyers and sellers is the rule change regarding agent compensation. Once the agreement goes into effect, each party to the transaction will be responsible for paying their representative.

Traditionally, it’s the home seller who is responsible for paying the commissions for their and the buyer’s agent. The compensation level paid by the seller is posted on the MLS as part of the listing information.

Nationally, the commission paid on a real estate deal averages about 6% of the home’s sales price, evenly split between the two realtors. For example, the commission on a $400,000 home amounts to $24,000 out of the seller’s takeaway, with $12,000 paid to each agent.

Under the new agreement, NAR will remove the agent commission field from the MLS and prohibit its members from offering broker compensation when they list a home on the service.

The new rules allow sellers to decide whether or not to pay a buyer’s agent. If the seller chooses not to pay a commission, they can slash the amount they pay to sell their home in half. If the seller does decide to pay a commission, they can negotiate the amount and type of compensation, from offering a flat fee to a percentage of the sales price.

As a result of the new rule, some buyers will likely have to pay their agent’s commission, and they may be able to negotiate how much that is. In another rule change, the NAR will now require members who represent buyers to enter into written contracts (or buyer’s agreements) that spell out the services offered and what those services will cost the buyer.

For buyers and sellers considering a home purchase this year, finding a competent and trustworthy agent is more important than ever. Depending on the level of experience and track record, “you can get a vastly different experience with every single person that you might work with,” says Bret Weinstein, CEO and founder of Guide Real Estate in Colorado.

Buyers could also decide not to hire an agent and avoid having to pay any commission at all. But for those who prefer to have a professional’s help, a little research could go a long way toward making the process of buying a home easier.

Weinstein recommends asking pointed questions about their experience and knowledge of the local market, the services they provide, strategies for deciding on list prices (or bids) and getting concessions, and why in general you should choose them as an agent. And then decide if the amount they’re asking for is worth it.

“If you’re going to be paying a fee for a service, there actually needs to be a return,” Weinstein says.

Newsletter

Subscribe to Retire with Money

Whether you’re already enjoying your Golden Years or steadily saving for the goal, retirement is always on our mind. Sign up for the latest retirement news, insights, and advice.

Sign Up

By clicking "Sign Up" I agree to receive newsletters and promotions from Money and its partners. I agree to Money's Terms of Use and Privacy Notice and consent to the processing of my personal information.

Sign Up

More From Money:

8 Best Mortgage Lenders of March 2024

Everything to Know About Biden’s $10,000 Homebuyer Tax Credit Proposal

4 Best No-Appraisal Home Equity Loans of 2024