The National Association of Realtors (NAR) and the Department of Justice (DOJ) recently agreed to settle a series of class action lawsuits raised in several states, and this settlement has changes set to take effect mid-July 2024. Buyer-side commissions and how they’re managed within the Multiple Listing Service (MLS) will be heavily affected by these changes, affecting the real estate market nationwide.
Read on to find out how the NAR changes in commissions will affect homebuyers. We’ll break down the potential pros and cons for buyers, what to expect moving forward, and how the MLS will operate under these updates.
A Brief Overview Of The DOJ Settlement
In March 2024, the NAR reached a settlement agreement to resolve multiple class-action lawsuits alleging anti-competitive practices related to buyer agent commissions. These lawsuits claimed that the NAR’s rules required properties listed on MLS to include a predetermined buyer agent commission, and that these rules limited competition and inflated costs for consumers.
While the NAR denies any wrongdoing on their part, the settlement includes several key provisions:
- Financial settlement: NAR has to pay $418 million over approximately four years to resolve the claims.
- Changes to MLS practices: A new rule set because of the settlement now prohibits offers of buyer agent compensation on MLS platforms, meaning that any such compensation will no longer be communicated through this platform.
- Disclosures of buyer agent commissions: Real estate agents now have to disclose to buyers how much compensation they will receive from the seller’s listing agent.
- Written buyer-broker agreements: Buyers will be required to enter into written agreements with their agents before viewing properties, specifying the compensation the agent will receive. Note that while written agreements are required for in-person and live virtual home tours, you don’t need a written agreement if you’re just chatting up an agent at an open house or asking them about their services.
Pros And Cons Of The New Rules For Buyers
Several states already have rules mandating buyer agreements, but now that it’s required nationwide, buyers should brace themselves for the changes and their advantages and disadvantages. Here are some pros and cons to keep in mind to help you navigate your relationship with your real estate agent:
Pros
- Increased transparency: The requirement for written agreements will provide buyers with clearer information about the services they are paying for and the compensation their agent will receive.
- Potential cost savings: By negotiating compensation directly with their agents, buyers may have the opportunity to lower their overall costs, particularly if they can secure a favorable agreement.
- Enhanced representation: Buyers may become more engaged in the process by actively negotiating their representation, leading to better alignment of services with their needs.
Cons
- Complexity in transactions: The requirement for written agreements may complicate the home-buying process, especially for first-time buyers who may not fully understand the implications of these agreements.
- Potential for higher costs: Without the standardization of commissions on the MLS, some buyers may face higher fees if they cannot negotiate effectively with their agents. This is especially true if buyers are already looking at an in-demand area and feel the pressure to get an agent right away.
- Limited agent options: If buyers are required to sign agreements before viewing properties, they may feel forced to commit to an agent before they have had the chance to evaluate their options.
How The MLS Works And How The Settlement Changes This
The Multiple Listing Service (MLS) is a crucial tool in the real estate industry, serving as a database where real estate agents can list properties for sale. The MLS facilitates cooperation among agents, allowing them to share information about available properties and their associated commissions.
Here’s a quick breakdown of how the DOJ settlement changes how the MLS currently works:
| Aspect | Before Settlement | After Settlement |
| Commission disclosure | Included in MLS listings | Prohibited from MLS listings |
| Negotiation process | Standardized commission rates | Direct negotiation required |
| Agent cooperation | Facilitated through MLS | May require new strategies for cooperation |
Current MLS Functionality
- Property listings: Agents list properties on the MLS, including details such as price, location, and features.
- Commission structure: Traditionally, the seller’s agent specifies the commission to be paid to the buyer’s agent, which is then disclosed on the MLS.
- Cooperation among agents: The MLS promotes cooperation among real estate agents, encouraging them to work together to facilitate smooth property sales that work for all parties.
Changes Due To The Settlement
With the new DOJ settlement, the MLS will undergo these significant changes:
- No commission disclosure: Offers of buyer agent compensation will no longer be included in MLS listings, meaning that buyers will not see the commission amounts when viewing properties.
- Direct negotiation between agents and buyers: Buyers will need to negotiate compensation directly with their agents outside of the MLS framework, which could lead to varied commission rates and practices.
- Impact on agent behavior: Supporters of the changes believe that these updates will keep agents from being too influenced by financial gains. Critics, however, have pointed out that many buyers do their research online and in fact are often the ones showing prospective properties to agents and asking for their opinions, which has kept commissions from unfairly influencing transactions. Whatever the case, agents will need to adapt their marketing strategies and client engagement practices, focusing more on building relationships and providing their knowledge and value to buyers.
What Buyers Should Expect Moving Forward
As the new rules take effect, buyers should prepare to take on the challenge and responsibility of directly compensating their agents. Here’s a simple explanation of how that will look, as well as other changes buyers need to prepare for:
- More active engagement with agents: Buyers will need to actively engage with real estate agents to negotiate their compensation and understand the services provided.
- Understanding buyer-broker agreements: Whether they’re first-time homebuyers or individuals looking to acquire a new property, buyers should familiarize themselves with the terms of buyer-broker agreements, including how to make a specific compensation structure for the services offered.
- Potential for increased negotiation: Buyers may find themselves in a position to negotiate not only the price of the home but also the terms of their representation from their real estate agent, which could lead to more favorable outcomes.
- Market adaptation: The real estate market may take time to adjust to these changes, with agents and brokerages adapting their business practices to align with the new rules. This is especially true of underserved communities with different rules. For example, Veterans Affairs (VA) home loan recipients have existing lending rules that prohibit them from paying real estate commissions or fees under any circumstances. The DOJ settlement now leaves agents wondering how homebuyers in these circumstances will work around the new rules.
Stay Informed So You Can Adapt To The New Homebuying Process
The upcoming changes to how buyer-side commissions are managed within the MLS because of the DOJ settlement with the NAR will have huge implications for homebuyers. The new rules promise increased transparency and the potential for savings, but they also create new complexities that buyers, sellers, and agents alike must navigate.
Buyers should prepare to participate more directly in the home-buying process. Familiarize yourself with creating buyer-broker agreements and learn the fine points of negotiating compensation with an agent. With diligent research, you’ll be armed with the knowledge you need to find the right agent and dive into your area’s real estate market.