What the NAR Settlement Means for Real Estate Agents

Editor's Note: This is an ongoing development in 2024. Currently, the NAR has reached a settlement that will change how real estate agents receive commissions. Not to worry, our market experts believe that the settlement will change very little in practice. Buyer's agents are still going to be essential to real estate transactions.

For as long as most of us can remember, real estate agents have been paid the same way: The listing agent (the agent representing the home sellers) negotiates the real estate commission with the sellers and splits that amount with the buyer’s agent. In most markets, commissions average between 5% and 6% of the home’s eventual sales price and are split 50/50 between the listing agent and buyer’s agent.

However, multiple lawsuits from home sellers have resulted in a proposed settlement that might change this structure.

The NAR (National Association of REALTORs) recently proposed a $418 million class action settlement with home sellers. In addition to financial remuneration, the settlement includes rule changes about real estate agent commissions.

It is important to note that the settlement has been proposed, but it still needs to be approved by the courts before it becomes official. At this point, there is no reason to believe the courts won’t approve the settlement. So many agents are preparing their businesses for these changes.

In this article, we’ll:

• Explain the claims against the NAR,

• Break down the new rules from the settlement, and

• Predict how these changes will affect the market.

Here’s what the NAR Settlement means for real estate agents.

The Claims Against the NAR

The home sellers who filed lawsuits claimed that real estate fees were excessive. Some sellers claimed that real estate agents, particularly REALTORs, colluded to keep commissions high. And some sellers claimed they did not know part of the commission would be going to the buyer’s agent; they felt it was unfair that they were asked to pay for the buyer’s agent.

Despite the settlement, NAR maintains that it is innocent of any wrongdoing. As licensed real estate agents know, real estate commissions have always been negotiable. There has never been a “6% commission rule.” It just happens that 5-6% is the range that sellers have been willing to pay and agents have been willing to work for.

It’s also important to understand the reason that sellers traditionally pay buyer’s agent’s fees. Buyers already have so many expenses between the down payment, closing costs, and moving, that many simply don’t have funds available to also pay for professional representation from an agent. But we agree as a society that buyers deserve representation in such a life-altering transaction. So sellers cover the buyer’s agent’s fees to make homeownership more accessible to new buyers.

With that in mind, let’s look at how the settlement plans to change the system in response to the claims.

New Rules from the NAR Settlement

The NAR settlement proposes two key rule changes:

Rule Change #1: Agents Cannot Offer Compensation via the MLS

Under the current system, seller’s agents enter the buyer’s agent commission in the Multiple Listing Service (MLS). The MLS is the database agents use to track the market; it shows all homes listed on the market, homes under contract, and homes recently sold. One of the fields included in MLS listings is for the buyer’s agent commission. So when an agent lists a home with a 5% commission, for example, they might enter “2.5%” in the buyer’s agent commission field.

The new rule prohibits agents from communicating a buyer’s agent commission through the MLS. It does not, however, prevent sellers from paying the buyer’s agent. Nor does it prevent listing agents from communicating buyer’s agent compensation offers outside of the MLS.

Rule Change #2: Buyer’s Agents Must Have a Signed Contract Before Showing Homes

It’s always been a good idea, when representing home buyers, to have your clients sign an exclusive buyer representation agreement. This agreement confirms that the buyers have chosen you as their agent. And, under the current system, this agreement entitles you to the buyer’s agent's share of the commission when your buyers purchase a home.

However, this contract was never required before home tours. Most agents liked getting the doc signed upfront to confirm the relationship and minimize confusion. But some agents preferred to give their clients time to get to know them through the home tour process before asking for a commitment.

The NAR settlement will require buyer’s agents to have a signed agreement with their buyers before the buyer can tour any home. Furthermore, this agreement must state the compensation agreed upon between the buyers and their agent.

Market Predictions Following the NAR Settlement

Experts are split on how this settlement could play out in the market.

Some are concerned that this settlement will make homeownership less accessible. Many buyers have already been priced out of the market, and requiring buyers to pay their own agent could mean even fewer Americans will be able to buy a home.

Some are optimistic that sellers and buyers will be able to negotiate lower commissions, which could bring home prices down. However, this seems unlikely for a few reasons. First, many agents may not be willing to work for much less. Secondly, many sellers would likely prefer to pocket any money saved on commissions rather than lower the home price.

Still, many industry experts believe the settlement will change very little in practice. If home sellers want to attract a wide pool of buyers to remain competitive, they may choose to offer a concession to the buyers for real estate fees. In this case, the purchase contract would include a clause stating the amount of money that the seller will give the buyers to pay their buyer’s agent. So the result would essentially be the same as if the seller had paid a 6% commission to the listing agent to split with the buyer’s agent.

There’s one thing everyone agrees on: buyer’s agents aren’t going anywhere. As AceableAgent’s Laura Adams points out, “Buyers' agents save clients time and money and will continue to be essential in real estate transactions.”

Whether you’re an active real estate agent, or you’re looking to get your real estate license and launch your career, there is a place for you in the dynamic real estate industry!