What the NAR lawsuit settlement will mean for buyers and sellers if approved and goes into effect in mid-July. 

By Mike Albin

In the past when someone wanted to sell their home, sellers would contact a realtor to list their home on the Multiple Listing Service, MLS.  The fee for listing a home would typically be between 5 and 6 percent of the selling price.  At a 6% commission, 3% would go to the listing broker and agent and the other 3% would go to the buyer's broker and agent representing the buyer. We are all pretty familiar with this scenario. 

 

What the NAR lawsuit stated was that buyers did not have the chance to negotiate what commission the buyer’s agent would get paid at closing and that was unfair.

 

What the changes will mean for a seller. When a seller lists their home after the lawsuit goes into effect they will no longer have to offer any commission to the agent representing the buyer. They can negotiate only to pay the listing agent commission of typically, anywhere between 2 and 3 percent. 

As a seller, to make your home more attractive to potential buyers, sellers can offer to pay all or part of the buyer’s agent commission or part of the buyer’s closing costs.

 

What the changes will mean for a buyer. After the lawsuit goes into effect when someone wants to purchase a home and would like a realtor to help them find a home, represent them in their purchase of home, negotiate the offer in their best interest, write up the sales contract, recommend inspectors and mortgage brokers, etc. Buyers will be able to negotiate with their realtor how much commission the buyer’s agent will receive at closing.

Pretty soon, realtors that represent buyers will be asking their buyers to sign a Buyer's Representation Agreement. This contract will spell out what the buyer’s realtor can expect to get paid at closing, again typically anywhere from 2 to 3%.  

 

A buyer wants to purchase a $400,000 home and wants a realtor to help them find the home and represent them while purchasing a home. The realtor and buyer enter into a Buyer’s Representation Agreement stating the buyer’s agent expects to be paid a 3% commission at closing. 

Homes they look at may offer to pay all, partial or none of the buyer’s agent commission.  

Scenario 1, If the seller is not offering to pay any of the buyer’s agent commission, the buyer would have to come up with an additional $12,000 at closing to pay his agent for representing him.  Will banks allow the buyer to add that 12,000 into their loan to purchase the home? We are unsure of that at this point.  Some of this will depend on how much of a down payment the buyers are putting down on the home.  

 

Scenario 2, If the seller is not offering to pay any of the buyer’s agent commission, when the buyer makes the offer, the buyer can ask the seller in the purchase and sale agreement to pay the buyer’s agent commission. This can be negotiated in or out of the purchase and sale agreement by counter offers paying all, none or part of the buyer’s agent commission.  

 

Scenario 3, If the seller is offering to pay part of the buyer’s agent commission as an incentive for buyers to look at and make an offer on their home. As in scenario 2, the buyer can still ask the seller to pay for any additional fees the buyer has to pay to cover their agent's commission in the purchase and sale agreement.  This would be very similar to now when buyers make an offer to purchase a home and ask the sellers to pay for the buyer’s closing costs.  All of the costs can be negotiated in or out of a purchase and sale agreement.  

 

Scenario 4, The sellers are very motivated and want to make a quick sale on their home so they offer, up front, to pay the buyer’s agent commission in full. Just like in the past when sellers offer to pay buyer’s closing costs, home warranties or credits for the buyers to make repairs like paint or flooring.

​

I think this ruling will benefit sellers, not having to pay the buyer's agents commission, will save sellers money.  On the reverse side, buyers, will end up paying more because they may have to pay the realtor that represents them out of their own pocket.  If you are one of those people that are selling a home so you can buy another home, for you, this may be a wash.  You'll save money on the selling side and pay more on the buying side. This ruling will probably most affect first time home buyers that will now have to come up with more money up front to make not only their down payment but also pay their agent's real estate commission.