A federal judge on Tuesday approved a settlement agreement between the National Association of Realtors (NAR) and home sellers who filed a lawsuit over the trade group's longstanding rules on commissions for agents.
Judge Stephen R. Bough gave preliminary approval to the NAR's settlement agreement. While the settlement is still subject to a hearing for final court approval, which is scheduled on Nov. 22, the preliminary approval would open the way for the NAR to implement changes required by the deal. The changes will likely go into full effect in the U.S. by September 16.
What the Settlement Means for Home Buyers and Sellers
The settlement now changes the way commissions are paid for every real estate transaction. Before, home sellers shouldered the commission paid to both the seller's and the buyer's agents. Home sellers who filed the lawsuit against the NAR in Missouri said this approach led to inflated fees that hovered near 6%.
The settlement would now block seller's agents from making commission offers to a buyer's agent. They will also no longer be allowed to include the buyer agent's compensation when listing homes on the Multiple Listing Services (MLS) databases.
Historically, listing agents have had to include buyer commissions to put a home on the MLS. They have also warned sellers not to list commissions of less than 2.5% to prevent buyer agents from "steering" their clients away from properties with lower compensations.
The settlement will not completely kill 6% commissions. However, commissions paid to agents could see a drop as buyers are now more likely to negotiate with their agents. They are also required to enter a written agreement that specifies compensation before they work with an agent.
This new system will foster more competition in the market. However, it could also prompt buyer agents to consider non-traditional pricing for their services. Instead of charging a flat percentage of the sale price, they could charge for hourly work or individual services provided to the client, including home tours and help with paperwork.
That being said, buyers won't necessarily have to pay their agent's commission. They can still make it a point of negotiation when making an offer to the seller.
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