A landmark settlement means that, as soon as this month, the 6% commission will become a thing of the past.
In March, the National Association of Realtors (NAR) reached a settlement with home sellers in a major antitrust lawsuit. In addition to paying $418 million, NAR agreed to change the way their realtors do business in the United States.
The best news for home buyers and sellers is that the new rules eliminate the standard 6% commission included in home price listings. How exactly this change will reshape the experience of homebuying remains to be seen. Buyers’ agents will need to develop new ways to negotiate their fees directly with home buyers.
One thing is for sure: the rule changes, which could go into effect as soon as August 17, will significantly impact home buyers, home sellers, and real estate agents. According to Norm Miller, University of San Diego professor emeritus, the settlement kicks off the biggest shake-up in real estate in a century. “I’ve been waiting 50 years for this,” he told CNN.
Could you be eligible for compensation from this settlement?Possibly, if you sold a home in recent years that was listed on an MLS. But, even if you qualify, don’t expect a big payout. For more information, check the eligibility requirements for your state or call 888-995-0207.
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With a 6% rate, and the median price of a U.S. home at $417,000, a seller could end up paying over $25,000 in brokerage fees. According to CNN, the home sellers’ agents who brought the suit against NAR sought to uncouple sales commissions from home prices. As a result of their successful suit, sellers’ agents are no longer required to share their commission with buyers’ agents.
The NAR reminds the public that broker fees were always negotiable. But they didn’t always appear so when rolled into the home cost on a multiple listing service, or MLS. An MLS is a database of available listings created and maintained by real estate brokers collaborating in a geographic area. Popular websites like Zillow or Redfin use MLS data to power their searches. Among other changes to MLS rules, the NAR settlement will:
- Prohibit an MLS from listing required broker compensation.
- Require compensation disclosures to sellers, and to prospective sellers and buyers.
- Require brokers who use an MLS to enter into a written agreement with the buyer prior to touring a home.
Overall, industry experts and home buyers hope that a more transparent process will translate into a more competitive market. Without a standard 6% commission, U.S. brokerage costs may fall more into line with those of other countries, like Singapore and the UK, where realtors charge 1% to 2% for the same services.
The UK’s brokerage market may offer a glimpse into the future for the U.S. One British online-only real estate agency, Purplebricks, offers to help you sell your house, for free. For a fee, you get extra services, like “a 360 virtual tour” and “expert mortgage advice.” These and other alternative brokerage models that exist only in small ways in the U.S. today may expand their market share in the coming years.
Realtors in Uncharted Waters
While probably good news for people on the hunt for a new home, the settlement will likely hurt realtors’ bottom lines, especially for less-established professionals. According to Miller, the UCSD real estate professor, lower brokerage fees could even mean a mass exodus of realtors from the industry.
Plus, the burden of education about the new rules, for now, may rest largely with realtors themselves. Builder and investor Sam Mehrbod, Ph.D., writing for Forbes, suggests that realtors get used to talking directly to customers in detail about how the new open pricing structure benefits them. Realtors will need to outline the services they provide each step of the way during the home buying process, the purpose of each service, and the cost.
Another standard new business practice for buyers’ agents will be to draw up a template for contracts with buyers. The template should outline all expectations while remaining easy for buyers to read and understand. Realtors can also strengthen their trust with buyers and sellers in this new environment by using social media and giving local presentations to answer frequently-asked questions.
One change to expect immediately is that interested home buyers will be required to sign a contract with agents before touring a home. While such a contract, sometimes called a buyer-broker agreement, is already required in some states, it will become mandatory throughout the country.
This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.
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Blog posting provided by Society of Certified Senior Advisors
