The new NAR settlement is changing the way some Americans buy and sell homes! Learn how it could affect you and how to navigate it!

For many, buying a home is the biggest financial decision of their lives. It’s a complex process filled with paperwork, negotiations, and a healthy dose of stress. Recently, the National Association of Realtors (NAR) reached a major settlement that could significantly impact the way you buy a home in the future. So, let’s talk about this NAR settlement, how it will change the homebuying experience and how you can navigate it.

A requirement for buyer-agent agreements is coming to the real estate scene in mid-July. This means homebuyers touring properties listed on the MLS will have a new document to consider: a formal agreement with their real estate agent. This agreement will be an opportunity for buyers to discuss and negotiate the scope of the agent’s services and their corresponding fees.

This change is significant and stems from a class-action lawsuit settlement between home sellers and the National Association of Realtors (NAR). In addition to buyer-agent agreements, the settlement removes the display of standard commission percentages for buyer agents from MLS listings.

While seemingly minor, this shift could have a major impact on the real estate industry. Experts predict it may influence the services offered by agents, their compensation structure, and potentially lower fees for both buyers and sellers throughout the homebuying process.

“I think that will make the industry more competitive. The prices are going to be lower, but also there are going to be fewer people who are just kind of lingering around [real estate sales], who have their license in hopes of maybe making one deal a year, people who have no experience and who are not really helpful for the clients anyway.”, said Sophia Gilbukh, a professor of real estate at City University of New York.

At the moment, in the world of real estate sales, a commission typically ranging from 5% to 6% of the final selling price is paid to the seller’s agent. This commission is then divided between the seller’s agent and the buyer’s agent, though there’s no set rule on the specific split.

However, sellers have a strong reason to offer the customary split. If they don’t, agents might be less inclined to show their clients those properties. Studies support this – a 2017 paper in the American Economic Journal found that houses with lower commission offers were both harder to sell (taking 12% longer) and less likely to sell overall (experiencing a 5% decrease in sales probability).

“We believe the 5% commission rate is viewed as standard by sellers, which is likely to keep commission rates largely unchanged near-term,” analysts at Jefferies Equity Research wrote in a note immediately after the settlement was announced last month.

Gilbukh predicts the recent settlement could shake up the real estate industry, offering both clients and agents a chance to break the traditional mold. This might involve unbundling buyer agent services, where clients pay for specific tasks like house tours, price negotiation, or paperwork assistance.

It could also open the door for tiered agent fees. Experienced agents might command the standard commission, while newcomers could offer their services at a discount to attract cost-conscious clients.

This shift, according to an analysis by Ben Harris, director of economic studies at the Brookings Institution, a nonpartisan think tank, together with research assistant Liam Marshall, could eventually lead to the demise of the typical 6% seller agent commission.

Increased competition, they argue, could push rates below 2%, which is common in other countries. This translates to significant savings for both buyers and sellers. For instance, on an average-priced house, a 2% commission would mean a savings of over $15,000 compared to the traditional 6% fee.

Shifting the up-front cost of buyer’s agent fees away from sellers and onto buyers could make housing less affordable, argues David M. Dworkin, CEO of the National Housing Conference, an organization focused on making housing more accessible. In an opinion piece, Dworkin highlights the potential challenge for first-time homebuyers already facing high prices and mortgage rates. They might be priced out of having an experienced professional represent them, potentially hindering their ability to buy a home altogether.

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