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Real Estate Law | Should seller wait to list house due to NAR settlement?

By ERIC P. FEICHTHALER - Real Estate Law | Apr 10, 2024

Eric P. Feichthaler

Dear Mr. Feichthaler,

I am in the process of listing my home for sale, and wondering how the National Association of Realtors settlement impacts me. Should I wait to list?

Blair S.

Dear Blair:

Your question is on the minds of millions of homeowners and Realtors across the country. I was astounded to learn that there are over 1.5 MILLION Realtors that are members of the National Association of Realtors (“NAR”) nationwide. The settlement could lead to a momentous shift in how real estate sales and purchases are handled.

As a very brief background, these changes are coming about as a result of antitrust lawsuits filed against the NAR. In one of these cases, a jury held the NAR and major real estate brokers colluded to artificially increase commissions. There are dozens of similar cases filed throughout the country. These cases hinge on whether the current regulations lead agents to discourage buyers from certain properties. Namely, properties that paid a higher commission, or had a higher price. Customarily, the seller pays the entire real estate commission, and the buyer’s agent receives a portion (typically half) of that amount.

Ultimately, the NAR is opting to settle these cases without admitting guilt. As part of the settlement, they propose to agree to significant changes in the way commissions are paid. First, a seller’s agent will no longer dictate the compensation for the buyer’s agent. However, individual sellers can negotiate offers from the buyer’s agent, including what compensation will be paid.

The major reason why a listing agent will not dictate the commission to the buyer is because the buyers will now be paying their side of the commission. Starting in July, it is proposed that buyers will make an agreement with the buyers agent on their level of commission. These agreement should be specific about the level and scope of services provided by the buyer’s broker.

The upside that is promoted in these changes is that overall commissions may decline, leading to more competition and savings. The concerns are great, however.

First, with buyers not accustomed to paying commissions, will need to research both the quality of their Realtor while comparing commissions and costs. Like many businesses, obtaining the cheapest Realtor may not be the best Realtor for your needs. The oft-used anecdote of “Do you want the cheapest surgeon or best surgeon” could apply here. Although one’s health and life is not at stake, hundreds of thousands of dollars ranks as a very close second for choosing a quality Realtor. Another concern I see is how a buyer pays the commission. There are many buyers putting little to no money down with FHA or VA loans. The likely answer is they will roll those costs into the mortgage. I see this as a negative, as the buyer could have negative equity the moment they purchase the home, and have higher monthly costs moving forward.

On the seller side, which you are on, you will now have the opportunity to pay a lower commission at sale. Buyers do have the opportunity to seek concessions from a seller to help pay for their commissions, and a buyer may factor in those commissions in what they can offer. Ultimately, this could lead to a reduction in average sales prices.

Some studies suggest that the overall commissions nationwide will decline by hundreds of millions of dollars on a national basis. The hope is this will provide high-quality Realtors an advantage, needing to prove their value to obtain business. As noted above, everyone likes a deal, so will sellers choose the best Realtor or the cheapest Realtor? Clearly, negotiations between parties will become more complicated with both sales price and commissions being a subject of discussion.

Based on the above, as a potential seller I would not let the NAR settlement dictate whether I sell now or not. Time will tell if these changes save money for sellers or buyers, or whether these changes complicates real estate transactions further. If you sign an agreement with a Realtor today, it will still be valid beyond July based on current proposals. Regardless of the timing you choose, research is vital to determine the reputation and quality of the Realtor you choose. Sellers can, and always have been able to, negotiate commissions with the listing agent. The final details of the changes are still developing.

Best of luck on a full price offer!

Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Cape Coral to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, and Cape Coral Kiwanis. He has been married to his wife, Mary, for 22 years, and they have four children. He earned his board certification in Real Estate Law from the Florida Bar, and primarily practices in real estate law and wills and trusts. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.