What a $418 million settlement on home-sale commissions may mean for you

A landmark class-action lawsuit may change the way Americans buy and sell homes.

The National Association of Realtors agreed to a $418 million settlement last week in an antitrust lawsuit where a federal jury found the organization and several large real-estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate.

The NAR’s multiple listing service, or MLS, used at a local level across areas in the U.S., facilitated the compensation rates for both a buyer’s and seller’s agents.

At the time of listing a property, the home seller negotiated with the listing agent what the compensation would be for a buyer’s agent, which appeared on the MLS. However, if a seller was unaware they could negotiate, they were typically locked into paying the listed brokerage fee.

The proposed settlement would have the commission offer completely removed from the NAR’s system and home sellers will no longer be responsible for paying or offering commission for both the buyer and seller agents, said a real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida.

“The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation,” The NAR wrote in a press release.

“Commissions remain negotiable, as they have been,” the organization wrote.

However, some of these changes may take time to materialize, experts say.

Settlement process ‘can take some time’

If a settlement agreement is accepted within a lawsuit between two people, the court generally won’t look at the settlement. Yet, in a federal class-action lawsuit, one that affects large number of people, there will be a period for the court and interested parties to review the settlement and offer commentary and feedback on the agreement, Cobreiro said.

“That’s the process that we’re about to enter, and that process can take some time,” she said.

As proposed, the settlement would have the NAR to completely remove commissions from its MLS system by July. That may be optimistic, Cobriero explained.

“It would be more realistic to see this being implemented later this year,” she said.

In the meantime, it’s “business as usual” for buyers and sellers, Cobreiro said. “There is nothing that agents should be doing differently currently in their ongoing transactions.”

A buyer and seller already in the market is probably not going to be affected by the settlement unless their property happens to be on the market a little bit longer than what’s customary, she said.

“The big gray area here is how will buyer [agent] commissions be handled moving forward,” said Cobreiro, as there is no finalized agreement yet that clearly indicates how that will be handled.

What the settlement could mean for homebuyers

The settlement agreement doesn’t say that the buyer’s agent will not be paid nor that the buyer’s agent cannot charge fees.

“The big question here is who is going to pay for those services moving forward. Will it ultimately be a buyer that will have to get the buyer’s agents commission together, on top of closing costs and on top of down payment?” Cobreiro said.

While commission fees are negotiable between involved parties, knowing what cards you have on the table as a homebuyer will be more important now than before. Using an agent will still be a smart way to achieve that, experts say.

“A great local agent can give you a competitive advantage,” said Amanda Pendleton, a home trends expert at Zillow Group. That’s especially true as low-priced starter homes are expected to remain in demand, she said.

Here are two things to know about how the settlement could change the process of buying a home:

1. Buyers could be responsible for their agent fees: Historically, real estate commissions typically come out of the seller’s pocket, and are split between the buyer’s and seller’s agents.

As a result of the settlement, the seller will no longer be responsible for commission fees for a buyer’s agent. So this is a new potential charge buyers need to consider in their budget. Historically, if a buyer’s agents got half of a 5% or 6% commission, that equaled to thousands of dollars.

For example: The median home sale price by the end of 2023 was $417,700, according to the Federal Reserve. That would mean commissions at a 5.37% rate amount to roughly $22,430, about $11,215 of which might go to the buyer’s agent.

But bypassing an agent’s services may not lead to direct savings, especially for first-time buyers, experts say. You could put yourself at risk by leaving the homebuying process entirely to the seller and their agent, said Cobreiro.

Sometimes things show up in your home inspection report that merit a credit from the seller, but if you don’t have an agent, the seller’s agent may not volunteer that, said Cobreiro.

Doing so would be a breach of their fiduciary duty to the seller, and it affects their commission if the price of the property, she added.

“Signing the contract is the least of it, there’s so many things that happen throughout the transaction that really require the expertise and the navigation by someone who understands the process,” she said.

2. Buyers may be required to sign a contract early on: If buyers become responsible for their agent’s commission, you’re likely to see more agents asking buyers to sign a buyer-broker agreement upfront, before the agent starts helping them find a property.

Most brokerages have a buyer agency agreement, but it’s common for real estate agents to wait to present the contract.

“They want to win the person’s business, they don’t want to scare them with having to sign any contracts,” said Steven Nicastro, a former real estate agent who writes for Clever Real Estate.

Moving the contract talks early on is a precaution to protect buyer’s agents in the market.

“That could lead to negotiations actually taking place at the first meeting between a buyer and the buyer’s agent,” Nicastro said.

Know you can negotiate the commission rate as well as the duration of the contract, which can span from three months to a year, Cobreiro said.

This article was originally published by Cnbc.com. Read the original article here.