It looks like the cost of selling (and buying) a home is going to be dropping this year, no matter where you live in the U.S. That’s thanks to the settlement reached this month by the National Association of Realtors (NAR) and home sellers participating in a class action lawsuit against the largest trade organization in the country. About 90% of home sales involve NAR-affiliated agents, who number around 1.6 million.
The settlement, in which NAR agreed to pay $418 million, is pending court approval. However, it’s creating buzz across the real estate industry and beyond. The lawsuit was over the commission rate that sellers have been required to pay real estate agents before their home could be listed with the Multiple Listing Service (MLS). That commission is typically split between the buying and selling agents.
That rate has generally been 6% of the sale price of the home — a rate that plaintiffs argued was artificially inflated. It’s higher than that in most other countries. In some cases, sellers and buyers split the cost, but only the seller has been required to pay it.
How will this impact the real estate market?
Some economists are predicting that commission rates could drop by almost one third. In a housing market as pricy as New York City, that can amount to thousands of dollars (possibly tens of thousands of dollars) in savings on a transaction.
There’s disagreement around how much this change will affect home prices and the housing market as a whole. However, one analyst notes, “Sellers don’t set home prices based on what their closing costs will be. The market sets home prices.” One economist adds that mortgage rates also “play a much bigger role in someone’s homebuying choices than how much they’ll need to pay their real estate agent does.”
If this settlement is approved, sellers will have more room to negotiate commission rates, and they’re sure to be lower than they have been overall. Of course, those involved in either side of a real estate transaction often don’t realize what is and isn’t negotiable and what reasonable rates are. For many, the whole situation is just mountains of paperwork (or online documents) to sign and initial. This is just one reason why having experienced legal guidance can help you as you sell or purchase a home.