Major Changes Coming?
This week, in the first of several class action lawsuits across the nation, "a federal jury ... ordered the National Association of Realtors [NAR] along with some of the nation's biggest real estate brokerages to pay almost $1.8 billion in damages, after finding they artificially inflated commisions paid to real estate agents" according to Fortune. On CNBC's Last Call, Michael Ketchmark, one of the attorneys representing the plaintiffs in the lawsuit, called the current system of buyer agent commissions a "rigged system." The New York Times reports that under the current NAR rule, "a home seller is required to pay commissions to the agent representing the buyer, which sellers claimed forced them to pay excessive fees to the agents".
Even though there is no hard fast rule about the commission charged, the normal amount that most agents have told me is between 5% and 6%, which is generally split evenly among the seller's broker and buyer's broker. It's very possible, that the commissions paid might change to where the seller only pays for the selling broker commission and the buyer is responsible for their buyer agent and broker. The case has been made that this might lead to adding to the buyer's upfront cost. However, it is also possible that in the future, the Federal Housing Finance Agency, which regulates the mortgage industry, might allow the buyer's agent's commission to be financed and added to the overall amount of the mortgage. Right now, the buyer doesn't pay upfront for their agent and broker commission, but rather pays later, when they sell their home and are then responsible for paying the buyer's broker commission. Michael Ketchmark makes the argument that under a new system, the buyer will be able to negotiate the commission they pay.
No one knows for sure how this is all going to play out. NAR has already signalled that they plan on appealling the ruling, so it would not be surprising if this case and/or the other class action lawsuits in other states eventually make it to the Supreme Court, which could take years. Also, it's possible, that local realtor organizations will go ahead and make changes prior to a possible Supreme Court ruling. Then again, it's quite possible that there will be minimal changes in the near future. In my opinion, at the least, it's more probable then not that there will be some changes to how buyer's agents and respective brokers are paid. It's also worth noting, that whenever there are changes, there generally is some confusion. I anticipate this is just the first of this story that you will hear from me. I'm sure there will be many more news stories about these lawsuits later this year and into 2024. If you would like to discuss the matter, please reach out to me. I'm more than happy to go into more detail about how this might affect your home buying journey.