ROCHESTER, N.Y. – Big changes are coming to the homebuying process. That’s the topic of this Consumer Alert. The National Association of Realtors, NAR has agreed to a $418 million settlement that will change the way commissions are paid.
Home sellers took the NAR to court claiming the current system in place for paying commissions unfairly inflated commissions. For decades, any agent advertising a home on the MLS, Multiple Listing Service, had to advertise the commission upfront. After the sale, the commission is split between the buyer’s agent and the seller’s agent.
Let’s say you’re selling your house for $200,000. If you agree to giving your realtor the customary six percent commission, that’s $12,000 dollars. Since the 1990’s, that commission must be split with the buyer’s agent. That means your agent and the buyer’s agent would each get $6,000.
In their lawsuit, sellers claim that’s unfair. Here’s why: If you, the seller, wanted to negotiate a lower commission with your agent, the agent for the buyer might be less inclined to show his client your house because the buyer’s agent would get a lower commission as well. A jury agreed with those sellers. So now agents are no longer able to advertise commissions on the Multiple Listing Service. Agents must now sign upfront agreements with buyers, so buyers know the exact prices of their services. Some experts believe ultimately, commissions will go down.
“And the end result may be that you’ll have fewer people wanting to be real estate brokers because the income may go down,” said Don Chesworth, a partner at the law firm Tully Rinckey.
That’s one of the arguments that critics are making. Critics also argue this will ultimately hurt first-time homebuyers because those inexperienced buyers may need more realtor assistance which commands higher fees. And if sellers won’t agree to those higher fees, those first-time buyers could be at a disadvantage.
But consumer advocates argue these changes are ultimately good for the consumer because it mandates full transparency, giving consumers choice. For example, the buyer may be able to pick and choose his services from his agent. Let’s say you may not need an agent until it’s time to negotiate, so you agree to only a one percent commission. And sellers don’t have to agree to a commission structure for the buyer’s agent before a deal is even made.
If the judge agrees to the settlement, we could see changes in July.
Also, if you sold a house in the last decade, you may have money coming your way from that settlement. Click here for information about settlement terms and how to file a claim.
