The National Association of Realtors (NAR) is one of the most powerful organizations in the US. For decades, it used its influence to keep realtor commissions at 5% - 6% of a house's sale price (vs. 1.5% in the UK or 2.5% in AU). In March 2024, the NAR agreed to settle a series of class action lawsuits that accused it of artificially fixing this rate and discouraging consumers from negotiating them. In this settlement, they agreed to pay out $418 million and change rules around commissions. These come into play starting August 17th 2024.

What are the changes to be aware of as a buyer?

You'll need to sign a contract with a buyer agent before touring houses or working with them

Right now, buyers can work with buyer agents (tour houses, etc.) without a formalized relationship. After August 17th, buyers will need to sign a contract with buyer agents before they can even tour houses together (including virtual & zoom tours). Buyers can, however, still contact listing agents directly to tour houses without needing to sign an agreement.

The buyer agent contract must lay out what services the buyer agent will provide for the duration of the relationship, and how they'll be paid (% commission, flat fee, per-service, etc.). Fees also have to be explicit - which means the agreement can't say something like "the buyer agent will be paid whatever the seller is offering."

The fee in the contract will be binding - for example, if a seller offers a 3% buyer commission but the buyer contract stipulates a 1% fee, the buyer agent will only be paid 1%. In this situation, the remaining 2% commission will remain with the seller unless otherwise negotiated. On the other hand, if the contract stipulates a 3% commission but the seller will only offer a 1%, then the buyer will be on the hook to pay the remaining 2% out of pocket.‍

No more buyer agent commissions on the MLS

Right now, buyer agent commissions are listed on the the multiple listing services (MLS) - these are unilaterally set at 2.5 - 3%, and are the amount that the seller agrees to pay the buyer agent from the proceeds of the home sale. Going forward, sellers can no longer advertise these on the MLS (though they can still share them on their own websites or verbally). These commissions are also superseded by the fees agreed upon in buyer agent contracts, as described above.  This change was made to discourage "steering," or the practice of buyer agents influencing their clients to buy houses with higher commissions.

Concessions can continue to be advertised in the MLS (ex. "seller will offer 2% buyer concession"). These can be used  instead of buyer commissions, but they must be paid out even if the buyer has no agent. In those cases, they can be used for closing costs, mortgage point buydowns, or potentially price reductions.

For a detailed rundown of all changes in the settlement, see here.

How will this impact me as home buyer?

There are still a lot of moving parts here, and nobody is 100% certain how things will play out. However, at least one thing seems very likely:

On average, buyers will have more flexibility and pay lower commissions

Though negotiation was technically always possible, in practice deviating from the "standard" 2-3% seller-paid commission was heavily disincentivized. Now that fees must be explicitly agreed upon upfront AND buyers may have to pay out of pocket for a portion of them, there's more incentive to shop around for options that fits their needs and budget. For example: 

• Full service agent: If you still want an agent to hand-hold you through the entire process, you can shop around between different agents and find the ones that offer the most competitive fees before signing.
• Partial service agent: If you’re willing to do some things yourself (searching for a house, visiting open houses, scheduling tours directly), you can pay an agent a lower fee to handle the remaining tasks, like paperwork and basic closing coordination. Some agents may bundle services into flat-fee offerings.
• No representation: You skip the agent entirely and use tools (like Bramble!) to get it done yourself. Depending on how you negotiate, you can save a lot of money by getting concessions towards closing costs and mortgage point buydowns, or you can strengthen your offer without spending extra money by letting the seller pocket the commission that would've gone to the buyer agent.

Over time, as lower cost options for buyers proliferate and savvy buyers elect to do more on their own, the average buyer agent commission will decrease. This is going to be exacerbated as sellers in hot markets test the waters by offering lower buyer commissions and buyers do not want to pay the difference out of pocket.

How will this impact home prices?

The overall impact on home prices is unclear. The settlement does not have any direct bearing on home values or pricing.  It's completely possible that these changes have zero impact on overall home prices and sellers simply pocket a great portion of the sale price. It's also possible that sellers who aren't on the hook for paying buyer agents reduce their asking price to sell faster. The impact may also be felt completely differently in different markets.

Only time will tell as the market absorbs this change in the coming years. On the bright side, you don't have to wait to start taking advantage of these changes now!