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How does the National Association of Realtors’ settlement affect you?

NAR has reached a settlement for it's anti-trust lawsuit. What does this mean for home prices, home buyers and home sellers?

Headlines are reading, end of 6% commissions- which is funny because we don't charge 6%. Commission, or what it should be called, compensation for services, has always been negotiable. I sell homes for 1.5% all the way to 3% depending on what the seller needs, and how much they are willing to pay a buyers agent.

First, let me explain how real estate works in San Diego. The current system is set up so the home seller pays the total commission. The home seller offers a commission to the seller's agent and to the buyer's agent. This is to bring represented home buyers to the transaction. This percentage has always been negotiable, but usually floats around 5%.

Now, you may say, that's a lot for the seller to pay. Historically when that seller purchased their home as a home buyer they did not pay any compensation. I like to think of it as a full circle. When you bought you did not pay compensation to an agent, and when you sell you pay all the compensation.

So, what's going to be different. Sellers may STILL offer compensation to buyer's agents but not publicly on the MLS. In some instances the buyer's may have to pay for their own agent if the seller is not offering a compensation.

The settlement is that they can no longer say, “I’m going to offer the buyer agent 3 percent,” for example, or 2.5 percent. So now, what happens is that the buyer’s agent basically would have no way to know whether they’re going to be paid for the work that they do. So something will have to change. Most likely, the buyer agents will have to directly negotiate with the buyer on the commission that they’re going to receive on a transaction.

What the settlement could mean for homebuyers

The settlement agreement doesn’t say that the buyer’s agent will not be paid nor that the buyer’s agent cannot charge fees. In fact it is still wise for home sellers to offer compensation for a buyers agent to alleviate a stressful, legal transaction.

“The big question here is who is going to pay for those services moving forward. Will it ultimately be a buyer that will have to get the buyer’s agent’s commission together, on top of closing costs and on top of down payment?”

While commission fees are negotiable between involved parties, knowing what cards you have on the table as a homebuyer will be more important now than before. Using an agent will still be a smart way to achieve that, experts say.

“A great local agent can give you a competitive advantage,” said Amanda Pendleton, a home trends expert at Zillow Group. That’s especially true as low-priced starter homes are expected to remain in demand, she said.

Here are two things to know about how the settlement could change the process of buying a home:

1. Buyers could be responsible for their agent fees: Historically, real estate commissions typically come out of the seller’s pocket, and are split between the buyer’s and seller’s agents.

As a result of the settlement, the seller will no longer be responsible for commission fees for a buyer’s agent. So this is a new potential charge buyers need to consider in their budget. Historically, if a buyer’s agent got half of a 5% or 6% commission, that equaled thousands of dollars.

How this can hurt home buyers

But bypassing an agent’s services may not lead to direct savings, especially for first-time buyers, experts say. You could put yourself at risk by leaving the homebuying process entirely to the seller and their agent.

Sometimes things show up in your home inspection report that merit a credit from the seller, but if you don’t have an agent, the seller’s agent may not volunteer that, said Cobreiro.

Doing so would be a breach of their fiduciary duty to the seller, and it affects their commission if the price of the property declines, she said.

Signing the contract is the least of it; there’s so many things that happens throughout the transaction that really require the expertise and the navigation by someone who understands the process.


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