What the NAR settlement means for you as a buyer

The National Association of Realtors recently settled a $418 million lawsuit that argued current policies artificially increased commissions and restrained market competition.

It has been commonplace in the industry for sellers to pay out between 5-6% of their home's sale price in commissions, divided equally between the selling agent and the buyer's agent. Under the new policy established by the settlement, which awaits approval from a federal judge, commissions will no longer be advertised on the Multiple Listing Service (MLS).

The lawsuit argued that the prevailing method of incentivizing agents often does not align with their clients' best interests. For instance, consider two homes: one offering a 2% commission and the other a 2.5% commission. While clients may prefer the home with the lower commission, agents may be more inclined to guide their buyers towards the home with the higher commission, a practice known as steering. The core of the argument is that when commissions are associated with listings and disclosed through the MLS, it compels sellers to propose higher fees (commonly referred to as "the industry standard") to make their homes more attractive. The amendment aims to eradicate steering by preventing agents from directing consumers to properties that offer higher commissions, thereby ensuring buyers receive unbiased advice. This lack of transparency has been problematic, as buyers are often unaware of the commissions their agents earn from transactions, which leaves them uninformed about possible steering. By eliminating the policy that permits the advertising of commissions on the MLS, the settlement intends to significantly reduce steering and allow buyers to negotiate commissions more effectively.

With this change, buyers will be encouraged to evaluate the value provided by their agents, potentially leading to negotiations and even direct payments of agent commissions. This approach empowers buyers to demand high-quality service, ensuring that agents' incentives are aligned with the buyers' best interests.