The National Association of REALTORS® (NAR) recently announced a surprising $418 million proposed settlement with a group of home sellers from across the country. Home sellers had filed multiple class action lawsuits against the NAR, accusing the NAR of inflating real estate agent fees.
This is a complicated issue with lots of moving parts, but I want to help local buyers and sellers in Connecticut understand what the NAR settlement means for you. So, in this article, I’ll cover the highlights, including:
- Why sellers felt wronged by the NAR,
- How the settlement intends to help,
- How supporters and opponents of the settlement both view it,
- What you get for your money when you hire a real estate agent, and
- What the NAR settlement means for homebuyers and sellers in Connecticut.
Why Did Home Sellers File Suits Against the NAR?
Home sellers felt that NAR’s implementation of its Buyer Broker Commission Rule was unfair to sellers. This rule mandated that all listing agents offer compensation for the buyer’s agent when listing a property on a Multiple Listing Service (MLS).
If you’ve bought or sold a house in the last few decades, you know that it has become standard practice for sellers to pay a commission to their listing agent, who then splits the commission with the buyer’s agent. The reason this became standard practice was that buyers already have so many upfront expenses (like the down payment, closing cost, moving, and potential repairs) that they often can’t afford to cover the cost of their own agent. This is especially true of first-time buyers, who make up around a third of all homebuyers.
The suits argued that sellers should not have to cover the cost of the buyer’s agent. There were also allegations that the NAR effectively violated federal antitrust laws by requiring listing agents to enter the buyer’s agent share of the commission in the MLS.
How Does the Settlement Intend to Help?
NAR is offering to pay a $418 million settlement to the sellers who felt wronged by the system and change some of their positions regarding real estate agent pay structures.
The proposed rule changes include the following:
- The agents’ compensation cannot be published on the MLS. The settlement aims to give buyers more power in negotiating their agent’s fee directly with their agent. So listing agents will no longer have a field to enter the amount that the buyer’s agent will receive from the listing agent when the deal closes.
- Buyer must have a written agreement with their agents before viewing homes. To make sure buyers understand how much they must pay their agent, there must be an agreement in place before any showings can take place.
- MLS services cannot require agents to subscribe to the service to receive compensation. This rule is meant to allow buyers to compensate agents who might subscribe to the local MLS.
Assuming the court system approves the settlement, as they are expected to, these rules will go into effect in July 2024.
How Supporters View the Settlement
Supporters of this proposal suggest it could lead to a market that’s more open and competitive. They believe that if buyers were responsible for paying their agents, it could foster more competition among agents, potentially resulting in reduced commission rates for buyers.
The settlement is also expected to provide buyers with a broader range of options in terms of service packages tailored to their preferences. For instance, buyers could opt for a fixed rate for each property showing, plus a separate fixed rate for each offer submitted, along with a fee for the closing process. This arrangement, where buyers pay set rates, could also eliminate the incentive for agents to direct buyers toward more expensive properties to increase their own commission. While this may lead to a more complex pricing structure, it could provide greater flexibility for buyers.
Advocates also note that this settlement could lead to cost savings for sellers, who could potentially arrange to pay only their agent and not the buyer’s agent. With reduced real estate fees, sellers might be more open to lower sale prices for their properties, which could, in turn, help reduce home prices.
How Opponents View the Settlement
Many real estate professionals, myself included, are saddened by the implications of this settlement and concerned about the real-world consequences it could have on buyers and sellers.
Those of you who personally know me know that I’ve always gladly put my buyers’ and sellers’ needs ahead of my commission. In my experience, this is true of most long-standing real estate professionals. We want to offer the best value possible to our clients because it’s satisfying for us when you are satisfied with our service! Plus, when you’re satisfied, you tell your friends and family about us, and we get to help even more people with their life-changing moves!
Here’s why I am concerned for CT buyers and sellers in the aftermath of the NAR settlement.
My Concerns for CT Buyers
Homebuyers are already struggling with the exceptionally high upfront investment of homeownership. Being forced to cover the buyer’s agent fee may prevent some buyers from entering the market at all.
This impact is particularly concerning for vulnerable groups like first-time buyers and those using VA loans.
VA loans, for those who aren’t familiar with them, are home loans backed by the Department of Veterans Affairs. They’re intended to help active military members, veterans, and their surviving spouses become homeowners. VA loan regulations explicitly prohibit these buyers from paying certain fees, including real estate agent fees. Therefore, the only way VA buyers can purchase homes after the new rules take effect is by requesting a concession from the seller to cover the cost. With the Coast Guard Academy, the Naval Submarine Base, and other military bases in Connecticut, I am concerned for our local VA buyers.
My Concerns for CT Sellers
Media sources are suggesting that sellers can significantly cut costs by not having to cover the buyer’s agent. However, this might not be the case.
It’s important to remember that many buyers have already been priced out of the market with the price growth in recent years. Expecting buyers to pay the buyer’s agent out of pocket would likely price more buyers out of the market. This reduction in the pool of potential buyers could lead to a decline in demand that could hurt sellers. So, if you’re selling a home, and you want to entice buyers to choose your listing, one of the best incentives you could offer is to cover the buyer’s agent’s fees.
So, while the media is saying that sellers can plan to cut their real estate expenses in half by paying only one agent, reality might see sellers paying around 3% to their agent and another 3% or so to assist buyers with their agent fees. This disconnect between media-driven expectations and market realities could lead to disappointment and frustration among sellers.
Should Real Estate Agents Just Charge Lower Fees?
You might be wondering, if agent fees are such an issue, should real estate agents just charge less?
As a real estate agent, I can explain why it might feel like we charge too much.
First, it’s important for you to understand that real estate commissions are, and always have been, negotiable. Across Connecticut, the commission typically ranges between 5% and 6%. Buyers and sellers have also had access to online “discount brokerages” for the last few decades. However, only a small percentage of buyers and sellers have used discount brokerages because they typically can’t match the services and reliability of a traditional full-service brokerage.
Now, if you’re selling a $400,000 home (considered mid-range in Connecticut) with a 6% commission, you will pay $24,000 in real estate fees. This is a lot of money. And it feels like even more money when you just watch your agent erect a yard sign, list the house on the market, schedule some showings, and walk you through the paperwork.
But your agent is doing so much more than what you see. Remember, my job is to handle everything behind the scenes to make the transaction as smooth and drama-free as possible for you. In many cases, the harder I’m working behind the scenes, the easier my job looks to my clients!
What You Get For Your Money When You Hire a Real Estate Agent
I don’t want to speak for every real estate agent in the country, but I’ll let you in on what my clients get for their money.
For my sellers, it starts with marketing. I pay the marketing cost for your listing out of my pocket. So when I earn a commission, the first thing I do with it is reimburse myself for the professional listing photos, videos, virtual tours, and advertisement costs. If I don’t sell your house, I might not recoup those costs, so I am highly motivated to sell your home.
Then there’s the behind-the-scenes labor. Here is a partial list of the activities I handle to help get you a successful sale:
- Create a pricing strategy, informed by years of market knowledge and expertise.
- Write a compelling listing description to captivate buyers.
- Personally call and message every qualified buyer I know who might be interested in your home.
- Research market segments for targeted advertisements.
- Create marketing graphics.
- Create social media posts and videos.
- Distribute listing announcements
- Coordinate email marketing campaigns.
- Host an open house and/or a broker’s open (depending on your preferences and our target market).
- Field dozens or even hundreds of inquiries from prospective buyers and their agents.
- Continuously analyze comparable properties to make sure your listing compares favorably to similar homes.
- Review, evaluate, and present offers.
- Represent you in negotiations.
- Draft counter offers and disclosures.
- Navigate the contract period.
And don’t forget, in this example, your $24,000 would also cover the cost of the buyer’s agent.
Here’s a peek at the services a good buyer’s agent offers:
- Pre-qualify buyers to make sure we only allow serious buyers into your home.
- Help buyers get pre-approved for a home loan so we know they’ll be able to get the funding to close the deal.
- Educate buyers on the home-buying process so they’ll be ready to make an offer.
- Personally contact every potential buyer they know who may be interested in your listing.
- Conduct showings (hours and hours of them).
- Draft and submit offers.
- Coordinate inspectors, appraisers, and title search reps during the contract period.
So 6% of the sales price is a lot of money. But you also get a lot of service for your investment. In fact, studies confirm that sellers who list with an agent consistently net more money on the sale of their homes than those who try to sell without an agent.
What the NAR Settlement Means for Buyers and Sellers in Connecticut
Here is what the NAR settlement means for local CT buyers and sellers, keeping everything we just discussed in mind.
What the NAR Settlement Means for Buyers
While one goal of the settlement was to have buyers pay for their own agents, you won’t necessarily have to pay your own agent out of pocket. Many sellers will likely be open to offering a financial concession to cover the cost of your real estate agent. They understand that their buyer pool would shrink noticeably if they refused to help with this expense.
You have the opportunity to negotiate with your buyer’s agent regarding their payment structure before you start working together. Some agents might agree to a fixed or hourly rate if you’re not comfortable with a commission percentage. However, opting for alternative payment structures could mean missing out on valuable services you hadn’t anticipated needing. And you could end up spending far more than expected if you tour more homes than anticipated with a per-showing fee arrangement.
Also, before you can privately view homes, you’ll need to have a formal agreement with a buyer’s agent. And this agreement will need to outline the agreed-upon payment arrangements.
What the NAR Settlement Means for Sellers
Despite the NAR settlement, sellers should expect to pay around the same amount in real estate fees as pre-settlement.
Again, real estate fees have always been negotiable, and this settlement has cemented the importance of making sure buyers and sellers understand that the fees are not set in stone. However, a professional agent who is confident in their worth is unlikely to reduce their rate. And that’s not a bad thing. In fact, sellers generally prefer agents who are strong negotiators because they know their agent will be representing them in negotiations with the buyer.
It’s true that the typical scenario of paying around 6% in commission to your listing agent, who then splits this with the buyer’s agent, could shift. But you will likely find yourself paying around 3% to your listing agent and an additional 3% in concessions to the buyer to help them afford their buyer’s agent.
While it’s completely within your rights to decide you’ll only pay for your agent and not the buyer’s, this would significantly narrow your pool of prospective buyers. Many buyers, already facing high initial costs in purchasing a home, will not have the means to absorb their agent’s fees, so they will limit their options to listings that offer assistance covering this expense.
The Bottom Line
The NAR settlement was designed to bring greater equity and clarity to the structure of real estate commissions, and real estate professionals are all in favor of transparency and fairness. But this settlement also brings questions and new challenges for everyone involved.
If you have questions about these recent developments, please contact me. As a local Connecticut REALTOR with a commitment to service, value, and transparency, I’m happy to answer your questions and help you navigate our ever-changing real estate market.
