The real estate landscape in the United States is poised for significant changes, particularly when it comes to how buyer-side commissions are managed within the Multiple Listing Service (MLS). Because of a settlement agreement between the National Association of Realtors (NAR) and the Department of Justice (DOJ), there are new rules that will take effect on August 17, 2024.
These changes will reshape how agent commissions are structured and disclosed, which affects home sellers across North Carolina. Read on to learn more about the rules’ pros and cons for home sellers, what home sellers can do moving forward, and how these changes may affect real estate prices in North Carolina.
A Short Summary Of The DOJ Settlement Overview
In March 2024, the NAR reached a settlement agreement to resolve multiple class-action lawsuits claiming anti-competitive practices related to buyer agent commissions. The lawsuits claimed that the NAR’s rules required properties listed on the MLS to include a predetermined buyer agent commission, which they alleged limited competition and inflated costs for consumers.
While the NAR denies any wrongdoing, the settlement includes several key provisions which are summarized in the table below:
How The Settlement Affects MLS Functions
The Multiple Listing Service (MLS) is a crucial tool in the real estate industry, serving as a database where agents can list properties for sale. The MLS facilitates cooperation among agents, allowing them to share information about available properties and their associated commissions.
| Aspect | Details |
| Settlement Amount | $418 million over four years to resolve claims |
| MLS Compensation Rule | Prohibits putting buyer agent compensation offers on MLS, so buyers will not see the commission amounts when viewing listings |
| Buyer-Broker Agreement | Mandatory before viewing properties; details the compensation structure for the agent |
| Effective Date | August 17, 2024 |
Current MLS Functionality
- Property listings: Agents list properties and their key details on the MLS, such as location and price.
- Commission structure: Typically, the seller’s agent specifies the commission to be paid to the buyer’s agent. This amount is then disclosed on the MLS.
- Cooperation among agents: The MLS encourages agents for both the buyer and seller to work together to facilitate property sales.
Changes From The Settlement
Because of the NAR settlement with the DOJ, the MLS will undergo these key changes:
- No commission disclosure: Buyer agent commissions will no longer be shown in MLS listings, so buyers won’t see how much agents are being paid when looking at properties.
- Direct negotiation: Buyers will have to discuss and agree on agent compensation directly with their agents outside of the MLS. This may result in different commission rates and practices.
- Effects on agent strategies: Agents will have to change how they market properties and interact with clients, putting more emphasis on building relationships and offering value to both buyers and sellers.
Pros and Cons For Home Sellers
These changes will have a profound effect on how sellers negotiate with their agents and make offers to buyers. Here’s a short summary of the expected pros and cons of these updates:
Pros
- Increased pricing flexibility: Without a standardized commission structure, sellers may have more control over how they price their homes. This could lead to more aggressive pricing strategies and a more competitive environment for buyers, potentially increasing the final sale price.
- Reduced seller costs: As buyers are now responsible for negotiating and paying their agent’s compensation directly, sellers may face lower overall costs associated with the sale of their home.
- Enhanced negotiation opportunities: Sellers may have more room to negotiate terms with buyers, including concessions or closing costs, without being bound by a predetermined commission structure.
Cons
- Uncertainty in pricing: The transition to a new compensation structure may create uncertainty in the market, making it challenging for sellers to price their homes effectively.
- Potential for reduced buyer interest: If buyers are unwilling or unable to cover their agent’s fees, this could lead to a decline in demand. This may negatively impact a seller’s ability to sell their home quickly and at their desired price.
- Increased complexity: Sellers may need to navigate more complex negotiations regarding agent compensation, potentially complicating the selling process.
What Home Sellers Should Expect Moving Forward
With the settlement’s new rules set to take effect soon, home sellers should prepare for the effects on their relationship with their agents. Here’s what you should expect in the near future if you’re planning to selling your home or any other residential property:
- Direct engagement: Sellers will need to actively engage with their agents and have more upfront discussions about fees and representation.
- Increased transparency: The requirement for written buyer-broker agreements may provide more transparency in how commissions are structured, allowing sellers to make more informed decisions about their own representation.
- Greater focus on marketing strategies: Sellers may need to adjust their marketing strategies to attract buyers who may be more cautious about agent fees and compensation.
Why These Changes Won’t Significantly Affect Real Estate Market Prices
The prohibition of buyer agent compensation in the MLS may create some shifts in buyer behavior and seller strategies, but experts predict that the overall impact on home prices will be limited for several reasons:
- Strong demand: The housing market remains robust due to strong job growth and a relatively affordable cost of living compared to other major markets. This ongoing demand is likely to keep home prices high despite changes in commission structures.
- Limited inventory: The state has been experiencing a housing inventory shortage, which has kept prices elevated. As long as inventory levels remain low, sellers are likely to maintain their pricing power, reducing potential downward pressure on home prices.
- Market adaptation: While the new commission structure may introduce some initial uncertainty, it is expected that both buyers and sellers will adjust their strategies accordingly, helping to stabilize prices over time.
- Historical context: Historically, changes in commission structures have not led to significant fluctuations in home prices. For instance, a study by the National Bureau of Economic Research found that while commission rates have gradually decreased in the past decade, home prices have remained relatively stable due to other market dynamics like the ones we mentioned above.
Home Sellers Should Prepare For A More Active Role
The new rules due to the DOJ settlement with the NAR don’t just affect how buyers compensate their agents – they also affect how sellers approach fixing home prices and talking to their own agents. While strong, steady demand and a limited housing supply will keep home prices high, it’s still important for sellers to learn how to negotiate with their agents.
Sellers should consider being open to potential concessions and understanding how to entice buyers who may be discouraged by broker’s fees. By adapting to these legal updates and learning how to fix the right price for your property, you’ll be able to sell your home quickly and with minimal fuss.
Interested in how these commission changes might impact buyers as well? Be sure to read our companion article, How The NAR Changes In Commissions Affect Homebuyers, for a complete understanding of how both sides of the transaction are affected.