Front Range Real Estate Market Update, March 22, 2024

Everyone has been asking about “that settlement,” so we think covering it in this week’s market update is essential.

They’re asking about the proposed settlement between the National Association of Realtors (NAR) and home sellers. Once the court approves the settlement – likely in June or July – the way homes are bought and sold throughout the country will change.

There are a lot of opinions about what will happen, but let’s start with the facts.

What the heck are we even talking about?

Class action lawsuits were filed against NAR by home sellers who claimed the association – the largest trade group in the country – plotted with real estate brokerages to fix commissions. On Friday, NAR and attorneys for the sellers released a proposed settlement agreement.

What parties in the case claim

Sellers claim they were unfairly compelled to pay high commissions to their own agents AND to buyers’ agents and that they couldn’t negotiate smaller commissions or opt not to pay the buyer’s agent.

NAR claims commissions have always been negotiable. In a press release, NAR says, “The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation. That offer can be any amount, including zero.”

How did it work before?

For decades, sellers have paid the commissions of buyers’ agents. Before that, buyers were often unrepresented. Then, rules and laws were changed so listing agents could offer to pay the buyer’s agent. This benefitted buyers, who frequently poured all their money into their down payments. With those changes, buyers could have representation and put their money into the home they wanted to buy.

Often—but not always—listing agents have charged a 6% commission and split it evenly with the buyer’s agent.

What will change?

In the future, sellers and agents won’t be able to offer to pay the buyer’s agent in the MLS. That doesn’t mean sellers won’t be able to pay the other agent’s commission, but it won’t show up in the MLS like it does now. 

When buyers choose to work with an agent, they will have to sign an agreement that explains how their agent will be paid. 

What could happen

You’ll note that buyers didn’t bring this case. That’s because buyers benefited from the way the system worked before. It was sellers who thought they were paying too much to sell their homes.

While some buyers will be able to convince sellers to pay the buyers’ agents, that won’t always be possible. 

Think about a market where sellers are getting 10 or 20 offers. No seller will offer to compensate the other agent in that environment. (Even though this will still be possible.) 

Buyers will have a choice—they can go straight to the seller’s agent, who will happily write a contract but continue representing the seller, or they can pay for their own representation. 

When buyers pay their agents, they’ll have less money for a down payment. They may have to shop for a less expensive home or put off buying until they can save more. First-time buyers will feel the pinch the most. Buyers with enough cash to compensate their agent will have the upper hand in multiple-offer situations where some buyers want sellers to compensate their agent.

If more buyers enter negotiations without representation, they could suffer. They may pay more than they should or not get concessions an experienced agent could have negotiated on their behalf. Sellers’ agents represent their clients’ best interests. Any buyer who comes to them expecting guidance and advice won’t get it. Buyers need their own agent for that.

Some expect commissions to go down. Agents may or may not be willing to work for less than they do now. Being a buyer’s agent is hard work. A buyer’s agent may drive 1,000 miles in three months, show a buyer a hundred homes, and submit multiple offers before an offer is accepted. Some buyers give up before then, and their agents never get paid for that work. When agents get offers accepted, they still have to negotiate around the inspection and make it to the closing. Being a buyer’s agent is much more than searching for and showing homes.

Much of the media says home prices will fall, but I wouldn’t count on that. If sellers’ costs fall, they may not pass that savings on to buyers. We also have very low inventory and will remain short of homes for many years. 

How will this change how The Principal Team works?

For more than six years, we’ve charged sellers a low 1% commission and let sellers decide what—if anything—they want to allocate to pay the buyer’s agent. Until the settlement is approved, we believe most sellers will benefit from offering the buyer’s agent a commission.

After that, market conditions will dictate whether it makes sense for a seller to pay the buyer’s agent.

We could discuss the case’s ramifications for buyers, sellers, and agents for hours! We hope this clarifies what’s happening. If you have questions, call us any time. We may revisit this topic once the settlement is approved and new rules are enacted.