It’s been four months since the landmark settlement between the National Association of Realtors (NAR) and the DOJ. Since then, there has been widespread speculation about its impact on the real estate industry. Will this spell the end for Realtors? Could commissions be on the decline, or will the status quo remain? While the rules don’t take effect until August, let's explore what's on the horizon for home sellers in Central Ohio.
What Was the NAR Settlement?
On March 15, 2024, the NAR reached a pivotal agreement with the DOJ following a class-action lawsuit by home sellers. Allegations suggested that the NAR and Realtors nationwide colluded to artificially fix commissions at the traditional 6% rate.
Contrary to claims, including those from President Biden, the settlement does not make the 6% commission negotiable for the first time. Commissions have always been open to negotiation, exemplified by our $2,500 flat fee model. However, upcoming changes aim to enhance transparency in commission structures, potentially driving rates downward over time.
Key changes include mandating signed contracts prior to buyer-agent engagement and prohibiting commissions from being advertised on the MLS.
How Commissions Work and What’s Changing?
Traditionally, Realtors charge a 6% commission paid by sellers, split evenly between seller and buyer agents. The buyer agent commission, typically 3%, has historically been listed on the MLS. Starting in August 2024, this practice will cease, making the buyer agent commission negotiable as part of an offer, potentially reshaping how offers are made.
Under the new guidelines, while sellers will still pay the listing agent’s commission, negotiations will determine who covers the buyer agent’s fee. This shift empowers sellers and buyers alike to consider commission structures as a factor in offer negotiations.
How Will This Impact Central Ohio Home Sellers?
Traditionally (but not always), Realtors charge a 6% commission paid by the seller. In most cases, the seller agent and the buyer agent split the commission evenly. The buyer agent commission being offered is posted on the MLS ahead of time and is typically 3%. Although many buyers knew their agent was getting paid, many viewed their services as “free” since they weren’t the ones paying it.
Starting in August 2024, the buyer agent’s commission will be removed from the MLS. Instead, this commission will be negotiated with the buyer’s offer effectively making the amount an agreement between the buyer and their agent.
In this new scenario, the seller will still be paid the listing agent’s commission, but who pays the buyer’s agent? Well, it depends. The buyer agreement that’s now required before working with a Realtor outlines the amount the buyer agent will be paid. This might be a percentage, a flat fee, or perhaps a more complex variable structure. When buyers make an offer on a home, they’ll likely request the agreed-upon commission be paid by the seller. However, there’s no guarantee they will, thus making the buyer potentially liable for paying the difference.
This effectively makes the commission just another factor when negotiating offers. Let’s look at a hypothetical scenario where a home receives two offers. Offer #1 is for $300,000 and includes a 3% ($9,000) buyer agent commission. Offer #2 is just $295,000 but has a 1% ($3,000) buyer agent commission. In this scenario, the seller would likely go with offer #2 as the net price is effectively $1,000 higher than offer #1.
In summary, the new rules bring more transparency and complexity to the home purchase process, but it ultimately puts more control into the hands of buyers and sellers.
Conclusion
In conclusion, the recent settlement between the NAR and the DOJ marks a significant milestone for the real estate industry, particularly for home sellers in Central Ohio. While the full effects are yet to unfold, increased transparency and potential commission adjustments promise to empower sellers with more control over their transactions. As these changes take root, Central Ohio home buyers and sellers
can anticipate a shifting landscape that encourages smarter, more informed decisions in their real estate endeavors.
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