If you’re familiar with real estate, you would know that selling a $400,000 home typically requires paying an agent commission of $20,000 to $24,000, with very little room for negotiation. However, a recent National Association of Realtors (NAR) settlement disrupts this model.
This new NAR settlement is expected to give homebuyers and sellers more negotiation leverage over commissions and increase competition among realtors on pricing. This change challenges the long-standing notion that commissions are non-negotiable, marking a significant shift in the real estate industry.
What Led to the NAR Settlement?
In 2019, Missouri home sellers filed a class-action lawsuit against the National Association of Realtors (NAR), alleging that the NAR had violated antitrust laws by inflating commissions. A jury awarded NAR a $1.8 billion verdict, and it then agreed to a $418 million settlement without admitting wrongdoing.
The NAR settlement introduces critical rule changes: agents are no longer authorized to include buyer agent compensation on Multiple Listing Service (MLS) platforms, and buyers can now negotiate and formalize their agents’ compensation through signed contracts.
What Is the NAR Settlement 2024?
The NAR settlement 2024 refers to the most recent legal agreement addressing antitrust concerns within the real estate industry. The National Association of Realtors must implement adjustments resulting from this settlement to promote greater fairness and transparency in real estate transactions.
The settlement aims to create a more competitive and equitable market for homebuyers and sellers by enforcing new commission disclosure and negotiation rules. This 2024 agreement marks a significant shift in the industry.
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What Is the Mission of the NAR?
The mission of the National Association of Realtors (NAR) is to empower real estate professionals, uphold ethical standards, and advocate for property owners’ rights. The NAR aims to enhance the professionalism of its members while ensuring that the real estate market operates fairly and transparently.
By representing the interests of realtors and property owners, the NAR plays a significant role in shaping the policies and practices that affect the homebuying process. The NAR is built on core beliefs that emphasize the value of advocacy, professionalism, and integrity in the real estate industry.
These beliefs include a commitment to fair housing, promoting homeownership, and ensuring that realtors adhere to a strict code of ethics. The NAR also believes in the value of continuing education and professional development for its members. These principles guide the association’s efforts to uphold high standards and protect the interests of both realtors and clients.
Who Gets the Money in the Real Estate Settlement?
The funds are distributed to various parties involved in the NAR settlement. Typically, the seller receives the proceeds from the sale after all outstanding bills, including mortgage balances and closing costs, have been settled.
Realtors or real estate agents are paid commissions, usually a percentage of the sale price. Any fees owed to other parties, such as title companies or attorneys, are also paid out during the settlement process.
Since the standard commission model of 5% to 6% is no longer approved, increased competition is expected to drive down fees. Realtors can use different price structures rather than percentage-based commissions, including hourly or flat fees. This change can result in substantial savings for homebuyers and sellers.
According to a Federal Reserve Bank of Richmond study, estimates suggest that a cost-based commission model could reduce real estate commission costs by about $30 billion annually, a savings of about 30%.
Will Buyers Have To Pay Their Realtor Commission?
When signing contracts, homebuyers must now negotiate commissions with their realtor; however, whoever pays the fee remains flexible. In competitive markets, buyers could find it difficult to convince sellers to pay their agent’s costs, even though sellers might agree to keep the asking price from dropping.
However, current regulations prohibit commissions from being financed into a mortgage, which could make the process more complicated. Campaign organizations propose amending government lending regulations to enable commission inclusion in mortgages.
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Also, first-time homebuyers may find paying agent commissions challenging because they are often financially strapped and lack liquid assets. If they don’t already have a relationship with an agent, they could be tempted to cut back on necessary services to save money.
Experts warn that this could result in costly mistakes in critical areas such as financing, handling contracts, and negotiation. The need to cut costs may leave inexperienced homebuyers vulnerable during the complex homebuying process.
The Impact of NAR Settlement on Home Prices
According to housing experts, the potential for the NAR settlement agreement to reduce home prices remains limited. Reduced transaction costs may lead to a slight decline in pricing and an increase in relocations. However, significant price reductions are unlikely because the persistent shortage of available homes is a major contributing factor to the high prices.
More competition may result in lower commissions for pricey homes, but it won’t significantly affect affordability. If policymakers want long-term fixes, they should concentrate on expanding the housing supply.
Key Considerations for Home Buyers and Sellers
Here are some key points to consider when buying or selling a home:
- Homebuyers using an MLS must sign a written agreement with their realtor before touring homes to understand their services and fees to be paid.
- It is in your best interest to get a written agreement for in-person and live virtual home tours.
- You do not need a written agreement if you’re speaking to an agent at an open house visit or asking them about their services.
- Remember that the agent’s compensation for homebuyers and sellers remains entirely negotiable.
- When selecting a realtor, ask detailed questions about their services, fees, and necessary agreements.
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