In a monumental development that could reshape the landscape of real estate transactions across the nation, the National Association of Realtors (NAR) has reached a settlement that addresses the changes in the commission structure for real estate agents.

The National Association of Realtors lost a $1.8 billion jury verdict last year and was facing other lawsuits over the commission structure. The penalty threatened to put the organization into bankruptcy. As part of the settlement, NAR did not admit to any wrongdoing but agreed to pay $418 million over the next four years.

The Real Estate Agent Commission Changes in 2024 will have profound implications for both industry professionals and consumers alike.

The settlement comes after years of scrutiny and legal challenges regarding the traditional commission-based compensation model employed by many real estate agents.

Essentially, the sellers would always pay the commission for both seller’s and buyer’s agents. The standard total commission (which is split between the two realtors) is typically 5%-6% and is paid out of the proceeds of the sale.

Critics have argued that this model can lead to inflated costs for consumers and lack of transparency in pricing. Under the terms of the settlement, the NAR has agreed to allow greater flexibility in how agents can be compensated, potentially opening the door to alternative fee structures beyond the traditional commission model.

This could include flat fees, hourly rates, or other arrangements that more accurately reflect the services provided by agents and the value they bring to the transaction.

Real estate agents will be required to clearly disclose their compensation arrangements to clients upfront, ensuring that buyers and sellers are fully informed about the costs associated with their services.

This newfound transparency is meant to empower consumers to make more informed decisions and negotiate more effectively in real estate transactions. The result could have more negative effects, which only time will tell.

Compensation Field In MLS Removed

For years, sellers have effectively set the commission paid to buyers’ agents as a condition of using a multiple listing service (MLS) — a regional roundup of homes for sale. The combined commission is shared by buyers’ and sellers’ agents.

The National Association of Realtors will no longer require listing brokers to include “offers of compensation” on the MLS. Previously, brokers were required to enter any number in that field, even if that number was $0, but that will no longer be the case.

Seller and buyer agents will have to negotiate that compensation directly with their clients instead.

Agreements Required Between Buyers and Their Agents

NAR released that buyer agents would have to enter into a written agreement with their buyers before touring a home. this requirement may allow buyers to negotiate the appropriate compensation, for the level of work that their agents provide.

There was a potential conflict in having the home seller decide how much the buyer’s agent is paid, since they have different objectives in negotiating a home sale.

Unlike many other states, Connecticut has been a Buyer Brokerage state since 1990, so this requirement is not new here, but since the compensation options will be broader, buyers may now agree to different compensation arrangements with their reatlors.

Commissions being subject to more negotiation could lower the cost of buying and selling a home. It could also drive some real estate agents out of business. And it could push out buyers who need to finance most of the home value because they may not have the funds to negotiate the compensation for their realtor. Home sellers can still offer a commission to the buyer’s agent, but that will no longer be a condition of using an MLS.

Buyer Agent Compensation

Although listing and buyer agent compensation will be separated, there are three main ways buyer agents can still get paid:

Sellers can offer compensation to the buyer agent in the form of a concession
The listing agent can give a portion of their commission to the buyer agent
Buyers can pay their agents directly

While the full impact of the settlement remains to be seen, it is likely to spark significant changes within the real estate industry.

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Real estate agents may need to adapt to new compensation models and adjust their business practices accordingly. Some questions and challenges may arise as the industry undergoes this period of transition.

Real estate agents may face uncertainty about how to structure their fees in a way that remains competitive while still adequately compensating them for their services.

The real estate commission changes may make the negotiations both with the opposing party and their own agents more complex for buyers and sellers.

As of this writing, the changes will go into effect on August 17, 2024.

Disclaimer: The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only.