How the NAR Settlement Will Change the Way You Buy a Home

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A few weeks ago, an anti-trust lawsuit against the National Association of Realtors (NAR) was settled for 419 million dollars. News reports announced this would slash commissions by 25% to 50%. How would that happen?

First, a quick look at how selling and buying through an NAR realtor has worked. A seller offered a commission (6% being standard) from which both their broker and the buyer’s broker were paid, with the typical offer to the buyer’s agent at 2.5% to 3.0%. That information was displayed on the listing so buyers’ brokers would know what they would receive. The plaintiffs argued that sellers who offered a low amount to the buyer’s broker disincentivized the agent to show their property, so sellers would want to offer “the going rate” that buyer’s agents expected to be competitive.

Going forward, NAR will not allow sellers to advertise how much they will offer the buyer’s agent. The idea is that buyers’ agents are not going to agree to what will essentially become a raffle to see what they will be paid when they sell a specific property. Instead, the agent will sign an agreement to work for the buyer for a set fee or percentage of the sales price that will come directly from the buyer’s pocket. The seller will most likely continue to pay 2.5 to 3.0% to their agent. Basically, the court is seeking to move the burden of paying the buyer’s broker from the seller to the buyer.

Is that good news for sellers? Maybe.

The problem is that most buyers don’t have funds to pay their broker out of pocket. Current lending practices don’t allow buyers’ brokerage fees to be added to the cost of the home. They need to be included in the price of the house so they can be paid out of the proceeds of the mortgage loan.