By Sunayana Prabhu
The rules of buying and selling a home are going through a landmark shift across the country.
The nation’s largest trade organization, the National Association of Realtors (NAR), announced a settlement agreement in March in the United States District Court for the Western District of Missouri that it would resolve litigation brought on behalf of home sellers related to broker commissions. The hearing for final approval is scheduled for Nov. 26.
In addition to remuneration pledged by the NAR for eligible homeowners, the settlement agreement rolled out a set of rules for agents that took effect Aug. 17.
The new rules agreed upon by the NAR amend traditional commission models and establish how its 1.5 million agents, identified by the trademark Realtor©, get paid going forward.
For years, home sellers have been including the 5-6% market-driven agent commission in the sale price of the property. That commission was then split between the buyer’s and seller’s agents at closing. Now, seller’s agents are prohibited from posting the commission they will offer buyer’s agents when they list properties on the Multiple Listing Services (MLS) database, but offers of compensation can be pursued off-MLS and usually are.
The agreement also establishes the duration of the buyer-agent contract and gives buyers the right to negotiate their agent’s compensation through a formalized contract.
Buyers without an agent contract can still attend open houses but must be represented under contract to have a virtual or in-person tour of a house on the market.
Having a real estate agent is not mandatory; it is a choice. Agents add value to the complicated home-buying process by guiding clients at every step from open house to closing. Most people prefer to use agents to help with the negotiation process in a competitive market, which often leads to bidding wars. Real estate attorneys handle the legal aspects once an offer is accepted.
However, sellers can market their properties through word-of-mouth or online listings, and buyers can also make informed decisions without an agent.
The NAR has agreed to a $418 million monetary settlement over four years for recent home sellers who paid a commission to a real estate broker in connection with the sale of a home on an MLS anywhere in the United States during eligible date ranges, which differ by state. This monetary settlement received a preliminary jury approval in April.
The NAR settlement agreement stems from a class-action lawsuit filed in 2019 by home sellers in Missouri who accused the NAR of antitrust violations and alleged agents were inflating commissions. According to a copy of the settlement agreement on the NAR’s website, in October 2023, a federal jury ruled in favor of the plaintiffs, resulting in a series of copycat lawsuits against the NAR in other states. To resolve the lawsuits, the NAR agreed to a settlement but denied any wrongdoing.
To further protect consumers and enhance transparency in New Jersey, Gov. Phil Murphy signed a Real Estate Consumer Protection Enhancement Act (CEPA) into law Aug. 1 that reinforces the NAR settlement changes and mandates additional changes. Those changes include providing seller’s property disclosure forms before a buyer signs a contract, listing agents being required to explicitly disclose who they represent at open houses, and mandatory continuing education classes for agents, among others.
As with any sweeping change, the new rules have sparked confusion and concern among real estate professionals who help buyers and sellers navigate one of life’s biggest transactions.
“It kind of got a little bit more cumbersome mostly for the buyers and for the Realtors,” Diane Traverso, president of Monmouth Ocean Realtor Group, said during a call after the rules came into effect.
Traverso said she was concerned about first-time homebuyers, Veteran Affairs buyers, and Federal Housing Administration buyers who “really need guidance and help to find a home.”
“It’s already so competitive out there, and now they have to be concerned with paying a buyer’s broker separately if the seller refuses to pay,” she said.
The new regulations have left many real estate agents grappling with the practical implications. Raymond Epshteyn, a Realtor with Keller Williams, expressed his frustration over the sudden changes. “There’s a lot of confusion,” Epshteyn said. “We have to fill in a lot of new documents, and we’re not entirely sure why. If the MLS was supposed to provide commission information and now they’re not, what’s the point of using MLS at all?”
The buyer-agent agreement binds a buyer to a specific Realtor for the duration of the contract, ranging from a week to six months. Some say this adds a layer of difficulty for Realtors trying to build new client relationships.
“It’s the last thing we need,” Epshteyn lamented. “Our reputation has already taken a hit for various reasons, and now we have to ask new clients to trust us and sign a contract right off the bat. It’s a tough sell.”
A contract can be terminated with a three-day notice, but no houses viewed with the contracted agent can be purchased using a new agent.
One of the most significant changes brought about by the settlement is the way commissions are handled which has led to varying approaches among real estate brokers. Some, like Keller Williams, prefer sellers cover both the buyer’s and seller’s commissions.
“The idea is that by paying both sides of the commission, you could attract more offers, which might lead to bidding wars,” Epshteyn explained. “In theory, this could help sellers make more money and sell their homes faster. But it’s not a guarantee.”
Epshteyn said other firms, such as EXP Realty, have decided not to follow this approach, leaving sellers responsible only for the commission of their own agent.
The settlement is expected to have a ripple effect throughout the real estate industry. Commission negotiations could lead to more competition among real estate agents, which might drive down commission rates. However, that doesn’t mean housing prices will dip.
“Agent compensation is not a factor that impacts housing prices,” said Mantill Williams, the vice president of public relations and communication strategy for the NAR, noting that housing inventory in the area, interest rates and life-changing events such as new jobs, downsizing or aging are all deciding factors that drive the housing market.
As 2024 winds down, there seems to be some silver lining on the horizon for those expecting mortgage rates would fall from previous years.
According to Freddie Mac, the Federal Home Loan Mortgage Corporation the national 30-year fixedrate mortgage averaged 6.98% as of Nov. 5, 2024. A year ago, it was 7.63%.
“In general, higher rates reflect the strength in the economy that is supportive of the housing market,” said Sam Khater, Freddie Mac’s chief economist, in an Oct. 17 press statement.
But “potential homebuyers can stand to benefit, especially by shopping around for the best quote as rates can vary widely between mortgage lenders.”
As the real estate industry continues to adjust to these changes, there is hope among professionals that a balanced approach can be found. “My hope is that we, as an industry, figure out a way that works best for everyone, including our clients,” Epshteyn said.
The article originally appeared in the November 7 – November 13, 2024 print edition of The Two River Times.
