Major changes have been implemented in how buyers and sellers handle realtor commissions following the groundbreaking NAR lawsuit settlement.
Previously, sellers were responsible for paying both the listing agent and the buyer's agent, typically amounting to 5-6% of the sale price, with a national average commission rate of 5.32%.
Now, buyers must negotiate commissions directly with their agents and sign a buyer's agency agreement before touring homes.[1]
These changes may reduce sellers' costs, increase commission transparency, and give buyers control over their agents' fees. I recently discussed these impactful changes with Yahoo Finance. Here's what you need to know about the key real estate commission changes.
📝 NAR settlement: Key takeaways
Listing agents can't advertise buyer’s agent fees. This change shifts the responsibility to buyers and their agents to negotiate fees directly – rather than the seller predetermining and dictating the buyer's agent's compensation.
Seller concessions may resemble the current system. Many MLSs are introducing a field for seller concessions, often allowing them to be expressed as a percentage. The process may feel very similar to the current system. The key change: If the negotiated buyer's agent fee is lower than the concession amount, the buyer keeps the difference, offering potential savings.
Buyer's agency agreements are mandatory. Buyer's agents must now secure a signed agency agreement before taking on clients and touring homes. This agreement outlines the services and fees and aims to give buyers greater cost transparency.
Settlement payments for impacted sellers. As part of the settlement, NAR has agreed to pay past home sellers $418 million over approximately four years. Eligible sellers may qualify for these settlement payments.
How the NAR settlement impacts you
What buyers need to know about commission changes
These commission changes will most impact home buyers, who are now responsible for negotiating and potentially paying buyer's agent fees.
In the past, the home seller typically covered these fees as part of the overall commission structure. For example, a seller would sign a listing agreement with their realtor, which included compensation for the buyer’s agent—usually ranging from 2-3% of the home's sale price, with a national average of 2.58%.
Under the new regulations, buyers must now sign a written agreement with their agent (see a real example below) before viewing properties, clearly outlining the agent's commission rate.
Buyers may encounter more complex negotiations, especially if they have low down payment funds. They may need to negotiate with sellers to include these agent fees in the closing process.
Buyer's agency agreement example
Here’s what a buyer’s broker service agreement looks like in Oklahoma.
In this agreement, signed before touring homes, the buyer commits to paying a specified dollar amount, commission percentage, or a retainer fee to the buyer’s agent, upon closing a home purchase (see section 7 above).
However, remember that the NAR settlement does not mean buyers will always be 100% responsible for their agent’s fees, as commissions remain fully negotiable.
💸 Possible scenarios for paying buyer's agent fees
Here are three potential outcomes for how commissions might get paid:
1. Buyers might negotiate for the seller to cover part or all of their agent's commission.
2. Buyers could negotiate a price reduction or credit that effectively covers the buyer's agents' costs (For example, a 2-3% price reduction to account for their fee).
3. A buyer might decide to finance the costs of their agent's fees into their mortgage (if their lender allows it). Instead of paying the agent's fee upfront, buyers might roll it into the mortgage, spreading the cost over the life of the loan.
Negotiate openly with your agent and stay flexible, considering there are multiple ways to structure their compensation to best suit your needs.
What sellers need to know about commission changes
Sellers' listing agreements must comply with the new rules, particularly excluding buyer agent commissions from MLS listings. The new listing agreement form should no longer include compensation for buyer’s agents.
For example, in this previous listing agreement in Charleston, S.C., sellers and their agents agreed on a percentage as "compensation to other brokerages," which would appear in MLS listings (this practice will no longer be allowed under the new rules).
📄 Prior listing agreement example
Again, sellers can no longer set or pay commissions for the buyer’s agent in MLS listings. So when buyer’s agents and clients search for homes, they won’t see any commission percentages or dollar amounts listed. This change could remove the potential bias where higher commission rates might have influenced which homes a buyer's agent promoted or showed to their clients.
Seller concessions
Sellers might consider offering concessions – such as paying buyer closing costs, providing a credit, or reducing the sale price – if this becomes common in their market.
These concessions can make a property more attractive to buyers and their agents. Buyers can use these concessions to help cover their agent’s fees by receiving direct payment or negotiating other terms.
Offering concessions can be a smart seller strategy to attract more interest, especially in competitive markets. Buyers may see these concessions as a way to lower their costs. Buyers could keep the difference if the agent fee is less than the concession, leading to savings.
What this could mean for total commission rates
Ultimately, the commission change opens up the potential for more commission negotiations. Sellers may need to negotiate with buyers on who will cover the buyer’s agent fees, possibly affecting the sale terms and the final sale price.
Clever Real Estate's CEO, Luke Babich, says the new rules could result in lower average commission rates, which might benefit buyers by reducing the total cost of a home.
“I expect the average commission rate for buyer's agents to decrease from 2.58% to 1.5% to 2%, reducing the overall national average commission rate to about 4.5%," Babich says."A fee reduction is expected as buyer agents compete for clients by offering better services and more competitive fees.”
However, a survey by Clever found that most real estate agents (54%) expect buyer’s agent commission rates to be about the same after the changes take effect, so opinions in the industry vary.
Buyer’s agents may also adopt new fee structures, such as flat fees, hourly rates, or fees per property showing, which give buyers more options but require them to consider these costs carefully upfront.
NAR settlement payout: Do I qualify?
The final key takeaway is that NAR has agreed to pay $418 million over approximately four years. There are three key criteria you must meet to qualify:
- You must have sold a home during the eligible date range, after October 31, 2019.
- The home must have been listed on a multiple listing service (MLS) in the United States.
- You must have paid a commission to a real estate brokerage regarding the sale.
Note: While the lawsuit specifically targeted brokerages like Anywhere Real Estate, RE/MAX, and Keller Williams, you do not need to have sold a home through those brokerages to be eligible for the payout.
Unsure whether you're a member of the Settlement Class? Contact the Settlement Administrator at 888-995-0207.
NAR settlement: The bottom line
The NAR settlement introduces major changes to realtor commissions, shifting more negotiation to buyers and potentially lowering costs for sellers. To summarize:
- Buyers must now negotiate directly with their agents and sign a buyer's agency agreement before touring homes.
- Sellers no longer set buyer agent commissions in MLS listings.
- Eligible home sellers may qualify for a share of the $418 million settlement payout.
Saving on commission is more important than ever. Sellers can take advantage of discount broker services like those offered by Clever Real Estate, which can cut a seller's listing commission by nearly half – while still getting top-notch service.
Home rebate programs could become increasingly valuable for buyers if they need to account for a 2-3% buyer's agent commission on top of other home-buying costs.