By Holden Lewis | NerdWallet
A significant legal agreement between home sellers and the real estate industry could lead to changes in the way homes are purchased and sold, starting this summer.
The National Association of Realtors announced on Friday that it had agreed to pay $418 million to settle more than a dozen antitrust lawsuits claiming that NAR had enforced rules that raised real estate commissions. NAR stated in the news release that it did not admit to any wrongdoing.
As per the settlement, negotiations between buyers and sellers might become more difficult. Home sellers would pay lower commissions, allowing them to keep more from the sales proceeds. Additionally, buyers, rather than sellers, would determine the amount paid to buyers' agents.
The settlement would bring about a substantial change for buyers, sellers, and real estate agents . There is uncertainty about how real estate markets will adjust from now until mid-July, when the settlement is expected to take effect.What the lawsuits are addressing
The settlement is the result of a federal class-action antitrust lawsuit, Burnett v. National Association of Realtors et al., filed in Kansas City, Missouri. Last October, a jury ruled in favor of the plaintiffs, agreeing that NAR and major brokerages had colluded to inflate commissions paid by sellers.
This is one of over 20 similar cases filed in federal courts across the country, not all involving NAR, and the only one that went to trial and received a verdict. NAR stated that the proposed settlement in the Burnett case would resolve all lawsuits against the association, pending court approval, and would come into effect in mid-July.
NAR is a trade association with over 1.5 million members in the real estate industry. The association indicated that the revised rules would impact anyone utilizing a
multiple listing service — a database of properties for sale in a particular area — regardless of whether they are licensed Realtors, the designation for real estate agents who are NAR members. The lawsuits challenge NAR’s cooperative compensation rule, which mandates that seller’s agents make “blanket unilateral offers of compensation” to buyer’s agents. To list a home on an MLS, the seller must make this “blanket unilateral” offer to pay buyer’s agents, who influence which houses their clients consider.
Plaintiffs argue that the cooperative compensation rule coerces sellers into paying inflated commissions to buyer’s agents. “Home sellers have been compelled to set a high buyer broker commission to induce buyer brokers to show their homes to the buyer brokers’ clients,” according to the plaintiffs in a lawsuit in Chicago — Moehrl v. National Association of Realtors et al.
Buyers would set their agents’ pay commissions With the elimination of cooperative compensation, sellers would no longer need to specify the size of the commission they'll pay buyer’s agents. In fact, under the new agreement, sellers would be prohibited from setting commissions for buyer’s agents in MLS listings.
Instead, it would be up to buyers to determine their own agents’ pay. Some buyer’s agents might charge flat fees, hourly rates, or a fee for each time they accompany a buyer to a showing. This would showcase the innovation in the industry that the Department of Justice aims to promote, according to a filing in another court case — Nosalek v. MLS Property Information Network et al, in Boston.
Negotiating would be more complicated
Some people are concerned that the new rule would make it even harder for buyers who have little cash.
“If home buyers have to pay their buyers agent outside of settlement, it will increase their financial burden,” said Victoria Ray Henderson via email. Henderson works exclusively as a
buyer’s agent
and owns HomeBuyer Brokerage, operating in Washington, D.C., and its suburbs in Maryland and Virginia. Settlement is another term for a real estate closing. Buyers wouldn’t necessarily have to pay their agents out of pocket. The new rule would allow buyers to ask sellers to pay the buyer’s agents at closing. This means that agent compensation might become part of the negotiation. “Hopefully they’d negotiate the buyer agent compensation and then that would just be included in the mortgage loan,” says Stephen Brobeck, senior fellow for the Consumer Federation of America.
What it means for buyers and sellers this spring
Sometime between now and when the settlement goes into effect in July, buyer’s agents might start asking buyers to sign contracts that spell out how much the agents will be paid and at what point in the process. Over the same period, home sellers should consult their listing agents to make sure they’re complying with the new rules. This settlement would likely apply to real estate agents whether or not they are members of NAR.
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The article The agreement could mean that home buyers would set their own agents’ pay, and sellers might save on commissions. originally appeared on NerdWallet.
