Are Real Estate Commissions Really Gone? Breaking Down the NAR Commission Settlement

Apr 1

The conversation around real estate commissions reached a crescendo in the last month since the National Association of Realtors announced a settlement agreement that would resolve litigation brought on behalf of home sellers. Since the settlement, news headlines have been flying. You might be wondering if this means realtors are out of business, or what it means for you as a consumer. Let's take a deep breath and unpack what this actually means!

A Little History:

In 2019 more than 260,000 home sellers in the midwest filed a class action lawsuit against NAR (National Association of Realtors) and four corporate defendants which alleged a conspiracy among real estate brokers which required sellers to offer compensation to buyers' brokers.

NAR and the corporate defendants fought back, stating that commissions for both buyer and seller representatives have always been negotiable. However, in October of 2023 a federal jury found the defendants guilty and awarded approximately $1.785 billion in damages to the plaintiffs, which will be tripled to over $5 billion under antitrust law.

As a result, Washington State recently enacted a major update to its real estate agency law, with a specific focus on buyer agency agreements. This change, effective January 1st, 2024, now mandates a written agreement between buyers and their brokers before any real estate services are provided. This new requirement aims to bring greater transparency to compensation structures and empower buyers to negotiate commissions.

Current Day:

On March 15th, 2024, NAR bowed out of the broker commission fight and agreed to a $418 million dollar settlement. The settlement, which must be approved first by a judge, is said to provide a path forward for real estate professionals and consumers.

Potential Impact for Home Buyers and Sellers (According to the National Association of Realtors)

Sellers could still offer compensation for buyer broker services, but compensation details would not be advertised through the MLS.
Compensation for buyer brokers could take various forms. These forms might include a fee negotiated and paid by the buyer to the buyer broker, concessions from sellers, or a portion of the listing broker's commission.

*The full impact of these changes won't be clear until the settlement proposal is presented before a judge, in mid-July 2024.

My Thoughts & Advice

The recent settlement presents both challenges and opportunities for our industry. While negotiations have always been possible, this event serves as a powerful reminder to clearly communicate value and fee structures to our clients and for consumers to interview their agents carefully.

However, it's crucial to consider the potential wider impact on the home-buying journey. Adding buyer agent fees to the already existing down payment, closing costs, and competitive market pressures that buyers experience might exacerbate affordability concerns, potentially making homeownership even less attainable for some. The full impact of these changes won't be clear until mid-July 2024. However, one thing is certain: adaptation is key.

Interview your agents:

With the possibility of buyers paying their agent fees, interviewing becomes even more crucial. You're investing in a realtor who gets you the most for your money. Schedule a consultation and ask pointed questions. Is your agent a seasoned pro with a full-time focus? Do they have a team for additional support? Research online reviews to see their reputation. A great agent is your advocate. Can they negotiate a stellar deal? Are they presenting off market opportunities, expired listings, and For Sale By Owners to their clients? How will they keep you informed about market changes and crucial contract deadlines? Understanding their communication style ensures you're always in the loop. Take your time, you want your money working for you.

6% Commission Debunked:

You might have seen headlines about the lawsuit impacting 6% real estate commissions. The thing is, there's never been a single, standard rate. It's important to understand there has always been a range. Our market in South King County has usually supported 5% in realtor commissions (total for both the buying and selling agents). Some agents charge up to 7%, while discount brokers might offer lower fees (around 1.5% or a flat fee) with minimal services like posting cell phone photos to the MLS. The bottom line, there was never a set rate and commissions fluctuate depending on the realtor and their specific menu of services.

Sellers who decide not to offer a buyer broker commission and potential impacts:

We're entering a period of adjustment. Some sellers may choose not to offer a buyer's agent commission. However, it's crucial to remember that all Washington buyers will have an agency agreement with their broker outlining compensation. This agreement will specify the buyer agent's fee and whether the buyer is responsible for it. If the buyer doesn't pay, they might agree with their agent to prioritize listings offering buyer agent compensation to maximize their time. As a result, homes without buyer agent compensation could experience longer market times and potential price reductions. Similar to how home improvements like new paint and carpet can increase a home's value, offering compensation for a buyers agent (or not) will affect marketability and overall pricing strategy.

Let’s chat about the negative perception of real estate agents:

Let's be honest, the real estate industry sometimes faces negative stereotypes. Recent headlines haven't helped, and it can be disheartening for dedicated professionals like myself. Many consumers have had negative experiences with agents who fall short. Unfortunately, the barrier to entry is almost nonexistent, and that's a huge problem for the industry's credibility. To unpack this further, The National Association of Realtors and local MLS platforms are membership-based organizations and their financial success is tied to the number of existing agents. While a real estate license ensures basic knowledge, some argue it doesn't guarantee sufficient experience and the numbers tell a story. Nationwide, between 2020 and 2024, we had 500,000 newly licensed agents.

Hot Take: You Don’t Need a Realtor.

It's important to remember that consumers are not obligated to use a realtor when buying or selling a home. Just like in other service industries, the choice is yours. You can navigate the complexities of the real estate market yourself, similar to how you could represent yourself in court or tackle home improvement projects without professional help. However, realtors bring a specific skill set to the table, as with any service based industry. We are seasoned negotiators, with a deep understanding of the local market and the legal intricacies of real estate transactions. As with any service, there's a fee associated with the value we provide.

The Future of Real Estate is Here

The real estate industry is on the cusp of a significant shift. While the headlines might be swirling, the future is not about the death of realtors and commissions, but rather an adaptation to a new landscape.

For consumers, the emphasis is on informed decision-making. Interview agents thoroughly, understand their value proposition, and negotiate fees. Remember, a great agent is an advocate who can save you money and time in the long run.

For realtors, it's a time to emphasize value. Focus on clear communication, strong negotiation skills, and a deep understanding of the local market. Consumers will seek out experienced professionals who can guide them through this evolving landscape.

The bottom line? The real estate market is changing, but the core need for qualified professionals who can navigate the complexities of buying and selling a home remains. By embracing transparency, value, and adaptation, all parties can navigate this new chapter in real estate.