NAR's $418M Commission Settlement Explained: What Homeowners Should Understand
In this comprehensive exploration of the NAR's $418 Million Commission Settlement, we examine its implications for homeowners. As we unpack the details, we'll clarify misconceptions and provide insights into how this settlement could affect housing affordability and price trends across the nation. We'll also shed light on new regulations surrounding buyer compensation and agreements, offering crucial information for buyers and sellers navigating today's dynamic real estate landscape in Huntsville, Alabama.
Insights on NAR's $418 Million Commission Settlement: Key Takeaways for Homeowners
First, it's important to clarify that this settlement is not yet fully approved. However, it's highly unlikely that a judge will reject it. In a lawsuit, there are typically two parties who are dissatisfied with each other. However, when they reach an agreement and settle their differences, they no longer have a dispute. Most judges will approve such settlements. Yet, there is a slim chance that the DOJ or another involved party may raise objections and create issues around the settlement.
However, this scenario is highly improbable because the plaintiff attorneys chosen for this case are highly experienced. They have extensive experience working with the DOJ, and it's very likely that they've already addressed any concerns during their due diligence before finalizing the settlement. Thus, it's very unlikely that the current settlement will not be approved.
You might be wondering, what exactly is the settlement? Well, you have until May 9th, 2025, to submit your claim, and you can find more information on their website at RealEstateCommissionLitigation.com. In essence, the National Association of Realtors settled for approximately $418 million, and there have been other settlements by major franchise brokers across the nation as well.
If you do the math, it's important not to get overly excited. If you sold a home in the last few years and are anticipating a significant settlement from this lawsuit, consider this: $418 million, with approximately 30% allocated to plaintiff attorneys, amounts to about $100 million. This leaves roughly $300 million. Over the same period, approximately 5 million homes were sold each year, totaling 25 million homes. So, dividing $300 million by 25 million homes, you're only looking at about a $12 settlement per home. If you're expecting a substantial settlement, unfortunately, you're probably not going to get it. In these types of lawsuits, it's the attorneys who come out on top. They stand to gain significantly, with fees totaling about $100 million.
Understanding NAR Settlement: Buyer's Commission Changes Explained
You might be wondering, as a potential buyer or seller in this market, how does this settlement affect you? Well, the headlines have been stating that buyer agency compensation is disappearing, signaling the end of 6% commissions. The national media has largely misinterpreted this story, presenting it in a somewhat sensationalist manner to attract more attention to their news platforms.
The reality is that while the commission or compensation field within the MLS is going away, it doesn't necessarily mean that buyer agency compensation is vanishing. Instead, the field within the MLS is being phased out. Buyer agent compensation isn't disappearing entirely; rather, it's shifting away from the MLS. Here's where it's likely to be listed now: Broker websites will likely be the primary platform for this information. It won't be on sites like Zillow or similar platforms such as Realtor.com or Homes.com. This is because the settlement rules stipulate that any site receiving data from the MLS cannot host these broker compensations. Therefore, you'll probably see them on brokers' websites alongside their own listings. Additionally, you might encounter them on third-party platforms where agents can input buyer commissions paid by sellers.
Again, the headlines suggesting that buyer agency compensation or the 6% commission structure is disappearing are highly unlikely. The work of a buyer agent is simply too valuable, both in serving buyers and in connecting them with sellers. It's highly probable that most sellers will still agree to pay a buyer concession to facilitate the sale of their home and assist with buyers' closing costs. This could include the buyer agency commission or even some of the homebuyers' closing costs to help them afford their home purchase and, ultimately, ensure the sellers get the highest possible price for their home in this market.
How can I be so certain that buyer compensation will continue? Well, once again, the value offered by buyer agents is substantial. An experiment conducted by the Northwest MLS allowed sellers to offer compensation of $0 or any amount they chose. Despite this flexibility, 98.7% of sellers still offered compensation because of the value it provided in maximizing the sale price of their home.
In summary, while buyer compensation rules are transitioning outside the MLS, the fundamental rules remain the same: Buyer agents can be compensated based on a percentage of the home sale, a flat dollar amount, or even a bonus.
NAR Settlement: New Buyer Agreement Rules Explained
Another change resulting from this settlement is the requirement for buyer agreements when viewing a home with a real estate agent. I believe this presents a great opportunity for homebuyers and consumers to interview their buyer's agent and also receive assistance with a buyer's consultation.
I strongly advocate for buyer consultations. Ever since I began selling homes, this has been one of my favorite aspects of the process—working with first-time homebuyers or repeat buyers to educate them on the process. Whether it's explaining potential changes since their last purchase or guiding them through the process of buying their first home, it's a significant value-added service we offer at Matt Curtis Real Estate. The buyer consultation not only clarifies the process but also outlines the services provided by an agent. This gives buyers the chance to interview agents upfront, much like sellers interview listing agents to determine who they want to work with. Now, homebuyers may also choose to conduct these interviews upfront by requesting a buyer consultation.
I believe this is a valuable benefit of the settlement for consumers and a fantastic opportunity for buyers to gain education early in the process. At Matt Curtis Real Estate, we'll offer many consumer-friendly options for buyers to work with buyer agents during their initial showings. We'll strive to make this process seamless and informative for our clients.
NAR Settlement: Impact on Housing Affordability and Price Trends
How does this impact housing affordability? There have been headlines suggesting that housing prices might drop as a result of this. In reality, commission does not affect the pricing of the home, so do not expect any price drops as a result of this. Additionally, this being an election year, housing is going to be a significant political issue with a decrease in housing affordability, not only here in north Alabama but across the US. You may come across some misleading statements. I saw one the other day claiming that this is going to save buyers money. However, it's very unlikely that housing prices are going to drop as a result of this.
The only potential outcome is that it could potentially cost homebuyers money if they were to have to pay a portion of their buyer’s agent commission. It's very unlikely to save buyers money, and it's not going to lead to a drop in prices. The reason we have less housing affordability is primarily because of inflation and all the money printing that we've done. There are two ways the US government taxes us as citizens. The first is through direct taxation, which we're all familiar with—the federal and state taxes that we pay each year.
The other hidden tax occurs when the government wants to implement a new program, yet they don't want to bring it up for a vote and ask if we're willing to raise our taxes to pay for that program or even a war. So what do they do? They engage in deficit spending, spending more money than we bring in. This has resulted in increased inflation, not only for housing prices but for everything. What do politicians do? They try to shift the blame onto somebody else, and that's exactly what you're seeing with this discussion on housing affordability. Housing affordability is down because of the overall inflation that we have, unfortunately, in the US.
Expect to see higher prices this spring and summer due to increased demand. If you're considering selling your home this year, stay tuned for my next video discussing both the pros and cons of offering a buyer concession.
Posted by Matt Curtis on
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