You may have heard that there was recently a multimillion-dollar settlement in a class action lawsuit against the National Association of Realtors (NAR) that would have ramifications for the housing market across the U.S. However, it’s understandable that unless you’ve been watching the case, you wouldn’t know just how it will affect you if you’re buying and/or selling a home this year.
The lawsuit by homeowners against the NAR, which is the country’s largest trade organization, involved the commission rate for real estate agents. In the settlement, which still requires court approval, the NAR agreed to pay $418 million.
The plaintiffs claimed that the typical commission rate of 6% of the sale price is artificially inflated. The seller is required to pay the commission to their agent to get a home listed on the Multiple Listing Service (MLS). The selling agent generally splits the commission with the buyer’s agent. Further, the seller may pass along some of the cost of the commission to the buyer.
Many home buyers and sellers pay little attention to this commission fee. They may just assume that it’s part of the cost of a real estate transaction.
What will this mean for sellers and buyers?
If this settlement is approved, commission rates could decrease by as much as a third. While that might not seem like a lot, in a housing market like Brooklyn, that can make a big difference. On a $1 million dollar home, a 2% decrease in the commission rate amounts to $20,000.
How the settlement will play out in transactions remains to be seen. However, it should at least give home sellers some negotiating room on commission rates. This in turn can potentially help buyers as well.
While most people don’t read all the fine print in the myriad documents involved in a real estate transaction, it’s important to know what you’re agreeing to (with commission fees being just one example) and how it could come back to haunt you. That’s why it’s always a good idea to have legal guidance in what could be one of the biggest financial transactions you’ll ever make.