How does the realtor settlement affect buyers and sellers?

The groundbreaking settlement reached by the National Association of Realtors (NAR) has major implications not only for realtors, but also for home buyers and sellers.

On March 15, NAR announced that it had agreed to settle lawsuits that accused the real estate group of imposing rules that artificially inflated real estate commissions. The agreement involved paying $418 million over four years. But perhaps even more seismically, "the settlement would do away with a fixture of the housing market: the 6% sales commission," said The Washington Post. Historically, sellers have had to cover a 5% to 6% commission that's split between the seller's broker and the buyer's agent, and that is factored into the home sale price.

This shift is "expected to dramatically reduce the cost of buying and selling a home," said CNN, and it will also reshape real estate transactions. Here is what buyers and sellers need to know about changes ahead, after the settlement takes effect in July following court approval.

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Sellers will no longer pay a buyer's agent

"At the heart of the proposed rule changes is commission 'decoupling' — buyers and sellers would now each be responsible for paying their own agents rather than making sellers cover fees for both," said The New York Times. 

This means that sellers will no longer have to worry about compensating the buyer's agent. In fact, said NerdWallet, "sellers would be banned under the new agreement from setting commissions for buyer's agents in MLS listings."

Buyers will get more say in how much they pay their agents

With sellers stepping back, buyers may have to pick up that slack to pay their agents. On the upside, that change also means "it would be up to buyers to set their own agents' pay," said NerdWallet. How agents are paid could shift as well, as "some buyer's agents might charge flat fees, or an hourly rate, or they might charge a fee for each time they accompany a buyer to a showing."

Furthermore, said NBC News, "another new rule would see homebuyers having to sign an explicit deal with a broker before they start working with one — something experts say would lead many homebuyers to forgo using brokers entirely." Another possibility is that buyers may "become more choosy with how much they pay in commissions," such as opting to "hire agents for fewer services, and therefore pay less," said The Washington Post.

Buyer-seller negotiations may get more complicated

With new variables in the mix, real estate negotiations may get more complex, particularly for buyers "who are short on cash," said NerdWallet. This is because the new rules do allow buyers to "ask sellers to pay the buyer's agents at closing," meaning "that agent compensation might become part of the negotiation."

Coupled with the expectation that commissions will go down, this could work in the buyer's favor. On the other side of the coin, said Fortune, "a home seller with multiple offers, for example, could refuse such a request, or opt to go with a bid from a different buyer who isn’t asking for such a concession."

Home buying costs — and home prices — could fall

"For the average-priced American home for sale — $417,000 — sellers are paying more than $25,000 in brokerage fees," said CNN Business, and "those costs are passed on to the buyer, boosting the price of homes in America." With the new rules, "that fee could fall by between $6,000 and $12,000," CNN Business said, citing TD Cowen Insights' analysis.

These fees getting slashed could translate to home prices dropping as well, said The Washington Post, as "the sticker price will no longer come with steep commissions that are typically automatically accounted for." Additionally, "fewer transaction costs might also incentivize people to move, buying or selling homes more often," which could also drag down home prices.