My Thoughts on the NAR Commission Settlement

Happy Spring!

With the spring season comes the spring selling season and if existing home sales – hitting a 12-month high in February – are any indication, we’re in for a long and active springtime. Also of note, the National Association of REALTORS® (NAR) recently reported that February median sales price experienced year-over-year increases for the eighth consecutive month.

And did you really think I was going to talk about NAR without talking about NAR?

This week, in the real estate news heard ‘round the world, NAR settled its commission lawsuit, effectively (pending federal court approval in July) changing the landscape of real estate commissions forevermore.

So, what happened?

Well, to understand that, let me briefly explain how the home sale works: Usually, a seller will list their home with a real estate agent for an agreed-upon commission percentage. This commission gets split between the listing agent and the buyer’s agent. To submit a listing into the MLS, a listing agent would have to indicate the buyer’s agent commission, so the terms were immediately clear to all parties.

According to the lawsuit, this long-standing practice is unfair to sellers who aren’t given the choice whether to pay for the buyer’s agent commission or not. In this new real estate world we’re all about to be living in, including a buyer’s agent commission in the MLS will be prohibited. Also, a seller will no longer have to pay a buyer’s commission unless they want to.

On the buying side, the commission a buyer’s agent receives will be set when the buyer enters into a Buyer Broker Agreement, basically hiring that agent to help them find their next home. This Buyer Broker Agreement outlines a specific commission percentage the buyer agrees to pay the agent once they purchase the home. The seller could potentially pay some or all of this commission, but that will become a negotiated term between the buyer and seller.

Let’s say the seller says, “Sure, I’ll pay the buyer’s agent commission.”

Then the home sale continues on as it always did before, with this commission taken from the seller’s net proceeds from the transaction.  

Let’s say the seller says, “Nope, not paying.”

Then the buyer must pay the commission or decide not to buy the home.

What does this mean for home buying, selling … and for you?

I think the dust on that question has far from settled, and we have a long road of education and negotiation ahead of us. Some sellers are going to think, “Great, I don’t have to pay the buyer’s agent now.”

Many buyers will either not have funds (especially true for first-time buyers) or more likely, not want to pay their agent separately regardless of the Buyer Broker Agreement, as it’s simply not the standard practice they’re used to. It might also limit some buyers to only look at houses where the seller will pay the buyer agent’s commission, regardless of how perfect another property might be for their lifestyle or needs.

It’s going to be a long and confusing road ahead, but education and reality are the key to any roadblocks we might encounter. And compromise. Just like negotiating any successful deal, this is one more negotiation point that will take place during the course of a transaction.

For as long as I’ve been in real estate, sellers have built commissions into their pricing by asking for “Seller’s Closing Statements” in advance. The sellers will now need to be educated that there’s a new way to sell, and this education will be critical to the success of the transaction for everyone.

What it comes down to, really, is strengthening the relationship between the agent and their seller, and the agent and their buyer. Sellers must work with an agent who fully understands the implications of the new business model, a professional who can provide clarity and collaboration throughout every step of the transaction. Buyers must trust their agent completely, as an advisor and confidant who will guide them to the best home possible.

For agents, it comes down to one word: change, and that’s a word we’re quite familiar with in our industry. We’ve weathered every kind of market change under the sun, every interest rate fluctuation, every cycle of a buyer’s market, a seller’s market, a balanced market, you name it. Change is our middle name, and change is our lifeline in an ever-changing industry predicated on the idea that if you don’t change, you’ll be left behind.

No matter how good or bad this decision might seem, it’s about change, and change generates innovation that would’ve otherwise never transpired. Sometimes, change takes a long time to arrive and other times, like right now, change comes in a day, in the form of a headline-making settlement that alters the very course of business as we know it.

The truth is, fast or slow, major or minor, change will always be a way of life, and I say we can either complain about it or embrace it, and once we embrace change what happens next? The only thing that can happen: We move forward together.

Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 •