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March 21, 2024

National Association of Realtors Settles Commission Lawsuits

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There’s been a whirlwind of media coverage over the past week about the proposed settlement agreement that would end litigation of claims brought on behalf of home sellers related to broker commissions against the National Association of Realtors (NAR). The settlement is subject to court approval and will take time to sort out.

It’s worth taking a moment to understand the commission structure that’s most commonly been used. In a nutshell, sellers have traditionally paid both the listing and buyer broker commissions. Deciding whether to cover the buyer broker cost has always been an option for sellers and has never been a requirement. The listing agreement outlines total commissions, and what percentages of the purchase price go to the listing and buyer agent brokerages. The listing agent specifies the buyer broker commission rate in the Multiple Listing Services (MLS) so it is clear from the start. From there, the full commission amount is divided four ways among the real estate agents and brokers on each side. Individual agents then pay their transaction coordinator, marketing costs and other fees out of their proceeds. (For more details, check out this past blog post that I wrote.)

There will most likely be changes in the future in the way that the industry structures broker commission payment, as per the settlement. The terms of the NAR settlement included two changes that will go into effect if and when the settlement is approved. One is that a new Multiple Listing Service (MLS) rule will prohibit offers of buyer broker compensation in the MLS, requiring buyers to negotiate agent fees directly with their agent. (However, it does not appear that sellers will be prohibited from offer buyer broker compensation if the seller chooses to do that.)

Secondly, a buyer-broker agreement will be required, which hasn’t always been the case. This agreement establishes a commitment between buyers and their agent, details the agent’s professional responsibilities and commission rate and functions similarly to the listing agreement between a seller and agent.

Apart from these facts, much of what I’ve read in the media has been very speculative. I’ll keep you posted as things unfold.

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