Starting in July, you might see changes in the way buyer’s and seller’s real estate agents are compensated in the wake of a $418 million settlement offered by the National Association of Realtors (NAR). The settlement comes in response to a lawsuit filed last fall by home sellers and several major brokerages against the nation’s largest real estate trade group, citing several NAR policies and practices for “lessening competition among real estate brokers to the detriment of American homebuyers.”
On April 4, 2024, a federal court cleared the way to reopen the antitrust probe and it’s likely the settlement will be approved in months. In the meantime, NAR has announced changes to its commission policies that could start this summer.
Why It Matters
In the past, when homes were listed for sale, the listing broker would publish the commission (typically 6%) and how it would be split (typically 50-50) as part of the listing, in effect “tying” the commissions together with the entire cost being funded by the seller at the close.
“The intent was to simplify the process of listing the home by agreeing to the commission split in advance,” explains Jamie Thomas, a licensed Residential Mortgage Loan Originator and real estate sales agent in Texas who also serves on AAFMAA Mortgage Services LLC’s (AMS) board of managers.
However, over time, the practice was shown to inhibit competition and drive up fees. Tying commissions to sales also means that sellers are encouraged to offer higher commissions to encourage “steering,” so buyers’ agents will bring more traffic to the home. Since buyers were generally unaware of the commission offered to seller brokers, they would be unaware of their agents’ incentive to prioritize higher-commission properties.
These practices have been widespread; close to 90% of all homes sold are listed through an MLS. And they may have a broad impact on the economy as American consumers now pay around $100 billion in real estate commissions each year.
How Buyers and Sellers Are Affected
Although the changes NAR proposes may affect home buyers more than sellers, both sides will have more flexibility in who pays the agents and how much. “It seems the seller can still pay the commission of both agents, the amount and split are more open to negotiation. Sellers can offer the normal 6%, or more or less. Buyers can also negotiate a fee with their agent to be paid at the close,” says Thomas. “While these could always be negotiated by sellers, that was not well known and bringing it to their attention didn’t serve the broker’s best interest. Now it’s something they need to inform sellers about.”
If buyers are forced to pay their own agent, which the VA has only recently allowed through a temporary policy change effective August 10, doing so could impact their ability to buy, or delay the transaction. “For buyers with limited access to financial resources, who may have saved for years and have just enough to buy the home, having to pay a real estate agent could force them to wait longer to build up additional funds,” notes Rick Maines, Vice President of Sales at AMS.
Some might turn to relatives or down payment assistance agencies or nonprofits for help, but doing so means part of their payment is considered an “interested party contribution.” “If that’s the case, it could make it harder for low- to moderate-income buyers to secure financing,” says Thomas. “If a seller is not willing to pay both real estate commissions, there’s going to be fewer buyers who can afford to do business with them. Their listing will not be as competitive as those offering to pay the buyer’s agent,” he adds.
So far, Fannie Mae, Freddie Mac and FHA are taking the position that in cases where the seller agrees to pay the buyer's commission, it's not considered a seller concession, which would put the loan in jeopardy to be sold in the secondary market. According to a May 22, 2024 article by NAR, the Department of Veterans Affairs (VA) plans to temporarily suspend its ban on direct compensation to real estate agents by homebuyers leveraging a VA Home Loan to purchase a home. Although this is not an official VA policy change for VA Home Loans, it is a positive signal by the VA.
In a lower interest rate market, the effect of the NAR settlement might not be as noticeable, but that’s not the case currently as 2024 interest rates hover around 7%, Thomas points out.
How Agents Are Affected
“With these changes, real estate brokers can’t just throw listings on the MLS and sit back and wait for traffic. They’ll have to explain commission options to their clients and the pros and cons of their decisions,” explains Maines.
The change is already rippling through the housing market. With more than three million active real estate agents in the United States, one possible outcome of these changes might be many agents exiting and the ones who remain taking on a higher number of transactions each year. “Agents will question if they now want to be a member of NAR and if they want to use the MLS because there are now new ground rules in doing so,” Thomas says.
Our Advice to AAFMAA Members
If you are in the market to buy a property, contact AMS very early in the process so we can pre-qualify you and help structure your purchase offer so it doesn’t negatively affect you in the long run.
“We are a reliable source of unbiased information. Each situation will be different, and we’re here to help you understand your options as you make what’s probably the largest purchase in your life,” says Maines.
We’re Here to Help
Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor, a licensed Mortgage Loan Originator, will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.
Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!