How the National Association of Realtors' Recent Lawsuit Settlement Affects Sellers: A New Era for Commission Disclosure

The real estate industry is undergoing significant changes after a recent high-profile lawsuit involving the National Association of Realtors (NAR). This lawsuit has not only altered how real estate transactions will be handled but also transformed how commissions are disclosed and negotiated. For home sellers, these changes mark a critical shift that could have both financial and strategic implications. In this post, we’ll delve into the details of the lawsuit settlement, what it means for sellers, and how the new commission disclosure rules are likely to affect the real estate market going forward.

The Lawsuit and Settlement: A Brief Overview

In early 2023, the NAR faced a lawsuit alleging antitrust violations related to its longstanding practice of requiring home sellers to pay the commission for the buyer’s agent. This lawsuit, filed by major real estate brokerages and law firms, argued that the NAR’s rules stifled competition and inflated commission fees across the industry. The plaintiffs claimed that the standard commission structure, often set at 5% to 6% of the home’s sale price, disproportionately benefited buyer’s agents and resulted in inflated costs for sellers.

After months of legal battles, the NAR and several large real estate companies reached a settlement. As part of the settlement, NAR agreed to change its rules regarding commission disclosures and how commissions are handled in real estate transactions. Though the settlement did not admit any wrongdoing, it set a precedent for how real estate commissions will be managed going forward, with an emphasis on increased transparency and competition.

The Old Commission Structure: How It Worked

For years, home sellers have been responsible for paying the commission for both the listing agent and the buyer’s agent. This practice was built into the Multiple Listing Service (MLS) rules, which meant that the commission paid to the buyer’s agent was typically included in the property listing itself. This model was intended to incentivize buyer’s agents to bring clients to the property and negotiate on behalf of the buyer.

While this system made it easier for sellers to market their homes (as agents were more likely to show homes with commissions clearly stated), it also created a sense of rigidity in the real estate market. Sellers often felt that they had little leverage when it came to commission negotiations, as the buyer’s agent’s fee was already baked into the deal.

The Settlement’s Impact: A Shift in Commission Disclosure

One of the most important aspects of the lawsuit settlement is the change in how real estate commissions will be disclosed. Moving forward, the NAR’s rules mandate that the commission being charged by the buyer’s agent must be clearly disclosed upfront. This commission will no longer be hidden in the MLS listings but instead will be made available to all parties involved in the transaction—buyers, sellers, and agents alike.

For Sellers: What Does This Mean?

While the primary goal of these changes is to increase transparency, the impact on sellers is substantial. Here are the key ways sellers are likely to be affected:

1. More Transparency in Commission Negotiations

Under the old system, sellers often did not have clear visibility into what the buyer’s agent would be paid, which made commission negotiation somewhat opaque. Now, sellers will have to explicitly disclose the commission they are willing to offer the buyer’s agent in their listings. This increased transparency could lead to more open negotiation between sellers and agents.

Sellers can now have more control over the total commission paid, and they can potentially negotiate the buyer’s agent's commission directly, rather than assuming a standard commission is required. Some sellers may choose to lower the amount offered to the buyer’s agent in order to reduce overall costs, but they should be aware that this could affect how many buyers agents are willing to show their homes.

2. Potential for Lower Commission Costs

With commission structures now fully disclosed, there is a possibility that commission costs could decrease in response to increased market competition. In the past, many real estate commissions were seen as “standard” and difficult to change. But as buyers and sellers become more informed about the breakdown of commission payments, it may encourage a more competitive market, with agents willing to reduce their fees in order to secure clients.

Sellers may also have more room to negotiate commission rates, as they can now evaluate what other sellers are offering to buyer’s agents. This transparency gives sellers the opportunity to shop around for a real estate agent and understand what’s reasonable to offer.

3. Influence on Buyer’s Agent Incentives

Another major concern is how this change will affect buyer’s agents. Traditionally, buyer’s agents were incentivized by the commission paid by the seller. Now that this payment is fully disclosed, buyer’s agents may alter their approach, depending on the amount being offered. If the commission offered to the buyer’s agent is lower than typical, it could discourage some agents from showing the property, potentially reducing the number of showings a home receives.

On the other hand, if a seller offers a higher commission to incentivize buyer’s agents, this could lead to more exposure and interest in the property, potentially resulting in a quicker sale or a higher sale price. Sellers will need to carefully balance commission offers to maintain interest in their properties without overpaying.

4. Increased Focus on Marketing and Sales Strategy

As sellers now have more direct control over commissions, they may also take a more active role in ensuring their properties are marketed effectively. The pressure is on to showcase not just the home itself but the overall deal. Sellers who offer competitive buyer’s agent commissions might find that agents are more motivated to present their listings to potential buyers, leading to quicker and more competitive offers.

Sellers will also need to stay educated about the new commission structures, ensuring they are in line with market norms and expectations. As the real estate market adjusts to these changes, sellers who are proactive about understanding the landscape may be better positioned to benefit from the increased competition.

The Future of Commission Transparency: A Shift in Real Estate Culture

The changes ushered in by the lawsuit settlement are likely to have a ripple effect throughout the real estate industry. Over time, we can expect more granular data on commissions to become publicly available, fostering a more competitive and transparent market. This could lead to more sellers asking questions about commission structures and the value that agents provide, which, in turn, could create an environment of more tailored and flexible service offerings.

For sellers, this marks an important shift toward greater autonomy over the sale process. While commission structures will remain negotiable, sellers will no longer be in the dark about what they are paying and to whom. This newfound transparency should encourage better decision-making and result in a more informed real estate market overall.

Conclusion: What Sellers Should Do Now

The NAR’s settlement has ushered in a new era of commission disclosure in the real estate world. For sellers, this means increased transparency, greater control over commission rates, and the potential for cost savings. However, it also comes with challenges, particularly when it comes to managing buyer’s agent incentives and navigating the shifting landscape of the real estate market.

Sellers should take this opportunity to:

- Understand Commission Expectations: Familiarize themselves with what is typical in their local market and how much they are willing to offer to buyer’s agents.

- Consult with Experienced Agents: Work with real estate professionals who can offer guidance on how to navigate the new commission disclosure landscape.

- Stay Informed: As the industry adjusts, staying on top of market trends and commission data will help sellers make informed decisions and maximize their sale proceeds.

Ultimately, this settlement represents an opportunity for sellers to take more control of their transactions, promoting transparency and competition in a traditionally opaque industry. By understanding the new rules and approaching their sales strategy strategically, sellers can navigate this evolving landscape and make the most of their real estate transactions.