Understanding the $418 million NAR settlement and how it will affect the housing market

In March, a $418 million lawsuit changed the future of both sellers’ and buyers’ agents in the real estate world. The National Association of Realtors settled the million-dollar payout after homeowners in Missouri filed a class-action lawsuit in 2019, accusing the company of violating antitrust laws by requiring the seller’s agent to propose dishonestly high payments to the buyer’s agent and establishing unfair rules.

Prior to the lawsuit, when a home was listed by an agent, it often had a buyer’s agent compensation price tagged to it that would be paid by the seller. The payments were allowed to be negotiated but apparently went without often, and the average compensation in the U.S. is about 6% of the sales price divided between both agents.

The lawsuit’s impacts will take effect on Aug. 17.

What to expect from the changes

According to the NAR , real estate agents who post properties on a Multiple Listing Service will now be required to have a written agreement with buyers prior to touring a home. This is what to expect in those transactions:

• A clear and evident disclosure regarding the compensation amount the agent will gain from the sale and/or how that amount will be decided.
• Compensation that is an accurate representation of the work done and is “not open-ended.”
• A section that clearly prevents the agent from accepting payment for brokerage services from any source beyond the amount or rate specified in the agreement with the buyer.
• A clear statement that broker fees and commissions are entirely negotiable and not regulated by law.

Alex McEwen, founder of McEwen Realtors and a third-generation realtor in Salt Lake City, told the Deseret News that the overall home-selling process won’t see much change and that the biggest difference will be no longer having a “predetermined universal offer of compensation from the seller.”

“Buyers will soon face a tough choice of whether to 1) go without representation on one of the biggest purchases of their lives, 2) only buy if a property’s sellers are willing to contribute toward buyers agent costs, or 3) pay for their agent out of pocket,” she added. “I think sellers will end up saving some money and buyers will likely end up spending more money than they were before.”

Will more people enter the market following the changes?

It’s sort of a wait-and-see scenario. People will likely not be racing to make a multithousand-dollar purchase, but it may lower commission, potentially lowering home prices.

The average commission in Utah is 5.53%, per Houzeo , and “on a median-priced Utah home of $561,500, this translates to $33,690.”

Real estate scholars have claimed that commission rates could fall as much as 50% if market prices were competitive enough. However, the reason people aren’t buying homes has more to do with market conditions involving limited inventory and high interest rates — not agent commission rates.

• A recent Zillow press release reported that the U.S. is short nearly 4.5 million homes.
• The current 30-year fixed rate mortgage is set at 6.47% for the weekly average, per Freddie Mac .
• Zillow also reported that the average price of a home in the U.S. as of June is $363,438, up 3.8% from last year. Utah’s average home for sale costs $522,732.

“A lot of our sellers have asked if they will save any money now that buyers agent commissions won’t be a set, universal offer of compensation on the MLS,” McEwen said. “Our response has been that they might save some money, but it will depend on a combination of factors, including how many buyers are willing to purchase a home without representation, how many buyers are willing and able to pay for their own representation, and the price that buyers agents charge for their services.”

Regarding whether or not she’s seen a shift in the market post-settlement, she said not really, “but we are in a market here in Utah where flat fee and limited service brokerages have been the norm for a long time. So the idea of real estate fees being negotiable and there being a spectrum of service and skill levels to choose from in an agent isn’t new to us or the consumers in our market.”