Changes from a landmark settlement affecting broker commissions from America's largest real estate trade association take effect this weekend, potentially creating a more complex and uncertain buying process for consumers, according to industry experts.
The changes made under the National Association of Realtors' (NAR) $418 million settlement, announced in March, "adds more uncertainty and unknowns to an already stressful and pressured industry," Phil Crescenzo Jr., vice president of Nation One Mortgage's southeast division, told FOX Business.
While the deal is bound to make the process more complex, Pending CEO Noel Roberts, says it will pave the way for more transparency and negotiations with agency commissions on deals. Pending is a tech-powered real estate firm that facilitates off-market transactions.
Under the settlement, NAR agreed to put in place a new rule prohibiting offers of compensation on listing databases governed by the group, also known as multiple listing services (MLS), to end a series of lawsuits claiming broker commission policies resulted in inflated fees and violated antitrust laws.
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NAR didn't admit any wrongdoing and has repeatedly said the trade group does not set commissions. NAR said these fees have and will remain entirely negotiable between brokers and clients.
Under the new rules, sellers are no longer required to offer compensation to a buyer’s agent, disrupting the traditional 5%-6% commission split in which the seller usually covers both the listing and buyer’s agent fees, according to Roberts.
Deals will now require explicit agreements through a buyer agency agreement (BAA), a legal contract that defines what a buyer’s agent will earn, independent of what the seller offers. The agreement is required before a buyer tours a home.
Given that these commission fees were and still are negotiable between both sides, it does not directly change how much Realtors earn, according to Crescenzo Jr.
And because the changes take effect Saturday, Crescenzo Jr. noted that the actual impact on what this will do to the market and how agents and firms will process transactions going forward, has yet to be seen.
"The new rules will shift the value proposition of using a buyer's agent. Active inventory doesn't reflect the actual inventory available in the market," Roberts said. "There are a ton of potential sellers unwilling to list publicly but still open to offers. With many homes easily found online, the real value of a buyer's agent will become more apparent if they can help buyers uncover hidden or hard-to-find inventory."
Buyers
The previous structure created the impression that a buyer's agent worked "for free," according to Roberts. The new rules taking effect Aug. 17 will bring about more transparency for buyers, but it could also cost more, he said.
For one, if a buyer agrees to a 2.5% commission for an agent, the buyer will need to ensure he can cover that unless a matching concession from the seller is negotiated.
As a result, buyers could become "more selective about the properties they view or the agents they agree to work with depending on whether a seller is willing to cover some or all of the buyer’s agent fees," Roberts said.
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Sellers
The new changes, which reclassify a buyer's agent's compensation as a "concession" rather than a "commission," "could result in more nuanced negotiations," according to Roberts.
"Sellers may feel pressured to offer these concessions to attract buyers, especially in competitive markets," he said. Though Roberts noted that the lack of a standardized way to display these concessions "could add layers of complexity, making it harder for buyers and their agents to quickly assess potential deals."
