By Aly J. Yale Edited by Dawn Bradbury Reviewed by Liisa Rajala Aug. 15, 2024, at 2:04 p.m.

https://realestate.usnews.com/real-estate/articles/what-the-2-billion-realtor-lawsuit-means-for-homebuyers-and-sellers
 

A shakeup is looming for the real estate industry as new rules take effect this week that change how agents get paid – and it could mean big changes for consumers on both sides of real estate transactions.

In May, the National Association of Realtors settled a series of class-action lawsuits alleging that its compensation rules, which forced selling agents to advertise compensation for buyer’s agents on listings, essentially amounted to antitrust, reducing competition and artificially inflating commission prices.

The bulk of the settlement – which saw the country’s largest trade organization agree to a slate of industrywide changes and pay over $400 million in damages – is set to go into effect on Aug. 17 in most parts of the country.

“Even though the practice of sellers paying both sides has been around for the entire century, the lawsuits made this practice look like a huge conspiracy,” says Ying He, a real estate agent at BarbCo in San Francisco. “NAR denied any wrongdoing and supposedly settled for liability/business reasons – corporations do that all the time, but the appearance is NAR and all associated realtors admit this is a somewhat shady practice and definitely against antitrust laws.”

Regardless of how it appears, the settlement has fundamentally changed how real estate transactions are handled moving forward. Here’s what you can expect as Aug. 17 rolls around if you’re buying or selling a home.

What happens Aug. 17?

Aug.17 is the deadline for two major changes: First, buyers must now enter into a contract with an agent before that agent can show them any properties. Some states already require this, but now, it’s required for any agent who’s a member of NAR (which is a whopping 1.5 million agents in America).

“A signed buyer representation agreement is required in many states already and has been a common practice many agents engage in – even in states where it was not required,” says Amy Lessinger, president at real estate brokerage RE/MAX. “It will be a change for agents in roughly 30 states.”

Also on this date will be a big shift in agent commissions. Prior to the settlement, NAR members who listed properties included offers of shared commissions within their local multiple listing services – the platforms on which most homes are listed. It's a tool real estate professionals use to view and share information regarding property listings. The exact amount varied, but this led to most sellers paying about 6% of the home’s sales price, with 3% going to their agent and 3% to the eventual buyer’s agent.

Starting on the 17th, those advertised offers of compensation are no longer allowed in an MLS. While sellers and their agents can still offer to pay a buyer’s agent's fee, that must happen via outside negotiations. That could mean that in some transactions, sellers pay no portion of the buyer’s agent fee at all – putting that burden fully on the buyer instead. The buyer could then negotiate and pay their agent’s fee out of pocket or go without an agent, managing their transaction on their own.

“The biggest change is that buyers and their agents will need to negotiate compensation directly before viewing homes,” says Jen Routon, president of the Denver Metro Association of Realtors. “If a seller is not offering compensation to the buyer’s agent, the buyer will pay their agent directly.”

What Buyers Can Expect

If you’re looking to buy a home post-Aug. 17, the first difference you may notice – depending on where you live – is that you’ll be required to sign a contract before touring any homes.

“The new rule about getting buyers to sign up prior to touring a home will be interesting,” says James Badia, an agent with Pam Harrington Exclusives in South Carolina. “This is very unfair to the buyer since they have not even developed any kind of relationship with the agent.”

There is no hard-and-fast rule regarding how long these contracts must be. While a contract must be in place before you can tour a home with an agent, the terms of that contract are flexible. It could be for one day, one house tour, or any other term you and your agent can agree upon, as long as it’s prior to the showing.

Real estate company Zillow has developed a new state-specific touring agreement that agents ask buyers to sign prior to touring a house. The seven-day agreement does not require a fee, and it does not bind the buyer to that agent. If a buyer wants to purchase a home, they need to sign a new agreement with an agent specifying the terms and compensation for their services.

Beyond this, you can expect some additional negotiations – both with your agent and with the seller and their agent.

“The new contract requirements will lead to more upfront negotiations and back-and-forth with clients,” Routon says. “I am starting to hear more stories about buyers going directly to the listing agent in lieu of having their own representation because they’ve heard that they will need to pay their agent directly and they just don’t have the extra funds, with high interest rates and home prices.”

More unique pricing structures – aside from just straight commission percentages – could become more prevalent after Aug. 17 too. More buyer’s agents may offer a la carte pricing, flat fees and hourly services, among other thing, to better fit consumers' budgets and needs.

“Hopefully moving forward, we will see more and more often that a commission is paid based on the expertise and level of quality of a real estate agent – and not some guaranteed number that is absolutely bullshit,” says Bret Weinstein, CEO and founder of Guide Real Estate in Denver.

What Sellers Can Expect

If you’re selling a home, you can expect to negotiate more, too. As He puts it, “In the old world, most times sellers would pay fees on both the buy side and listing side. In the post-August 17 world, each deal would be different. Any combination is a possibility.”

Sellers will technically have the choice whether they want to offer any compensation to the buyer’s agent – or none at all. That could mean lower out-of-pocket expenses on the surface, but agents say failing to provide a fee – or offering a low one – will likely have some residual blowback.

“Sellers expecting to net more on the sale of their home may be surprised that buyers will now be making offers lower than the asking price, due to factoring in the cost of paying for the buyer’s agent’s commission,” says Alex Mendel, an agent with Keller Williams Realty Boca Raton in Florida.

You also may see a smaller buyer pool if you’re unwilling to pay a portion of the other agent’s fee, as agents may be less likely to show your home.

“It is best to have many fishing poles in many different areas to catch the one fish that will buy your home,” Badia says. “If you don’t want to pay the buyer’s commission, you are probably going to fish in a small puddle.”

If you are willing to pay some or all of a buyer’s commission, make sure your agent knows that and is aware of how much. They can let other agents know – off the MLS – that you’re open to negotiating.

“Some listing brokers are using other methods to communicate that their seller client will pay some percentage compensation to the buyer’s broker – by text message or even putting that information on the for-sale sign in front of the home,” says Julie Rogers, a real estate law professor at Southern Methodist University in Dallas. “It is not clear at this time how it will all play out.”

Other Likely Changes

Potentially new pricing models for buyer’s agents are just one residual change that could come from the settlement. Changes to lending could happen, too – allowing buyers to finance their commission in certain scenarios.

In the case of VA loans, the Department of Veterans Affairs has already taken action. Previously, VA borrowers were not allowed to pay any sort of agent commission. Now, the VA allows certain “reasonable” commissions to be paid by the borrower.

Beyond this, there’s also the potential for an exodus among real estate agents – particularly buyer’s agents, who no longer have a guaranteed commission to count on.

“Agents are not salaried employees; they’re independent business owners working under brokerage firms,” Routon says. “They don't receive health insurance or 401(k) benefits and must cover significant business costs, including continuing education, licensure, and errors and omissions insurance. This is a time of significant change in the industry, and agents who cannot adapt may choose to leave.”

Newer agents who are less experienced or skilled in negotiating may be hit the hardest moving forward. The number of NAR member agents surged during the pandemic, and the group hit a record 1.48 million members by the end of 2020 – up about 800,000 over the previous year.

“This will be an especially huge blow for buyer's agents who don't have a good reputation yet, because traditionally, the listing agents basically negotiated the buyer’s agent compensation for them and built it into the listing,” says Alex McEwen, founder of McEwen Realtors and a broker associate at Selling Utah. “Now, buyer's agents who want to stay busy are going to need to learn to showcase and defend the value they are adding to the process as they negotiate their own compensation. Buyer's agents who can't demonstrate that they are effective agents for their clients are going to have a real problem.”