Sold a home in the last four years?
Congratulations. You’re entitled to a piece of the $418 million Realtor settlement fund.
But don’t expect a big windfall.
Since you will be among 21 million other Americans who are part of the “settlement class,” the amount per seller — after deducting attorneys’ fees — could be as low as $13.
That’s a pittance compared with the $18,000-$22,000 commission Southern California sellers typically pay buyers’ agents — on top of what they paid their own agents.
“It’s not going to be a lot of money,” said Jack Miller, president and chief executive of Orange County-based consulting firm T3 Sixty. “It’s not really a financial thing. The rules changes are the bigger deal here.”
The size of the seller payout is one of four key takeaways from the 107-page settlement reached this month between plaintiffs in more than 20 class-action lawsuits and the National Association of Realtors.
Homeowners and their attorneys argued in federal lawsuits across the nation that the decades-old practice of requiring sellers to post compensation offers for buyer agents amounted to price-fixing, keeping the 5-6% commission rate artificially high.
NAR called those claims meritless and vowed to appeal.
Faced with protracted litigation, NAR decided to settle on behalf of its 1.5 million members and more than 200 Realtor-affiliated groups named as defendants.
Under the settlement, announced March 15, NAR agreed to pay $418 million, or less than a quarter of the $1.8 billion a Kansas City jury order it to pay Missouri home sellers in October.
In addition, the trade group agreed to revise its commission rules, dropping the requirement that sellers post offers of compensation in a listing database called an MLS or multiple listing service.
Some billed the agreement as an “earthquake” that’s likely to topple the standard 6% commission rate.
A senior fellow for the Consumer Federation of America predicted commissions could fall as much as 30% over the next few years as buyer agents compete for business.
Some real estate professionals pushed back, denying that commissions will fall much, if at all.
One industry blogger called the settlement a “total victory for NAR,” arguing things will change little.
The settlement must win court approval before becoming effective, possibly in July.
Here are key takeaways from that settlement.
1. Buyers and their agents must sign a contract
While most home sellers sign listing agreements with their agents, only about a fifth of California buyers sign contracts, according to a California Association of Realtors estimate.
Under the settlement, Realtors and buyers must enter into a written agreement before the buyer can tour any homes. The contract must specify the amount or rate of agents’ compensation.
The amount of compensation can’t be an open-ended phrase like, “whatever amount the seller is offering the buyer’s agent.”
Agents also can no longer say their services are free unless they’re actually working pro bono.
“It’s going to be a different game,” said Art Carter, chief executive of the California Regional Multiple Listing Service, which covers most of Southern California. “For the first time, buyers and their agent are going to be under contract for the entirety of their relationship, and that discussion is going to happen up front.”
CRMLS General Counsel Edward Zorn called the mandatory buyer contracts “the change that’s going to impact the consumer the most.”
2. How buyer agents get paid will be up for grabs
The settlement doesn’t spell out how buyer agents get paid, so it’s possible sellers will continue to pay buyer’s commissions — or that some sellers will pay buyer commissions while some buyers will pay their own fees.
While the settlement prohibits offers of buyer-agent compensation on the MLS, sellers still can use the MLS to make offers of “concessions,” which buyers can use to pay closing costs, pay for repairs — or to pay their broker fees.
Listing agents also can still make compensation offers by any means outside the MLS — such as on their own websites.
Industry officials are hoping federal lending rules will be changed, allowing buyers to use part of their mortgage to pay their broker fees.
Zorn believes some buyers may include a request in their purchase agreement asking the seller to pay their broker fees.
“Now the buyer and the seller are negotiating how the buyer agent gets paid,” he said.
Since current rules prevent veterans receiving VA loans from paying commissions, the Department of Veterans Affairs also will need to revise those regulations.
Miller, the T3 Sixty CEO, predicted some buyers will face a difficult period as the industry goes through a transition.
“Consumers, especially first-time homebuyers (and) lower-income consumers … are struggling just to get the down payment together,” Miller said. “To place the additional cost or burden on them of paying an agent for representation may make homeownership totally unattainable for them.”
3. Will commissions really drop?
Industry insiders challenge media reports that commission rates or home prices are about to fall because of the settlement.
Rancho Cucamonga agent Laurel Starks was rankled by headlines like “Homebuying’s 6% commission is gone.”
“Blatantly false narratives have been published by mainstream media,” Starks said in an email. “Fictional statements are being published as though they are fact.”
Some observers also question the speculation that home sellers will lower their prices since they’re saving money on commissions. Miller and others note that bidding wars over a limited supply of homes are driving up home prices, not commissions.
“We think (sellers are) going to keep the money,” Miller said. “They are going to sell their home for what the market will bear.”
On the other hand, economists and consumer advocates expect commissions to drop by as much as $30 billion a year because of increased agent competition.
Consumer advocate Stephen Brobeck believes the NAR settlement will make price-fixing much more difficult.
“Buyers as well as sellers will be able to negotiate rates, which will be more transparent,” said Brobeck, a senior fellow at the Consumer Federation of America. “Discount brokers will be empowered to compete more effectively with agents trying to maintain 5-6% rates.”
He predicted commissions will decline by 20-30% over the next several years, “which represents tens of billions of dollars of annual consumer savings.”
Real estate commissions total about $100 billion a year, according to one industry estimate.
Rob Hahn of Las Vegas, a former industry consultant who writes a real estate blog under the moniker Notorious R.O.B., has an entirely different take on the settlement.
Asked how much commissions will drop, he said, “None. Zero. … Nothing changes.”
The settlement doesn’t eliminate seller-paid buyer commissions, he said. And it will do little to end the practice of “steering,” or directing clients to homes offering the biggest commissions.
“Agents already are out there saying, I’m just going to call that agent and say, ‘What are you guys offering?’ ”
If the listing agent says, “Nothing, we’re not required to,” he wrote, some agents will say, “Good luck selling (that house).”
“Steering is illegal, and yet, it happens all the time,” Hahn said. “I don’t know this settlement changes any of that.”
4. Who qualifies for settlement payments?
Anyone who sold a home after Oct. 31, 2019, will be eligible for a payment, so long as it was listed in an MLS and a commission was paid.
Sellers should receive notification if they’re entitled to a payment.
More than 21 million homes sold in that period, NAR figures show.
Assuming legal fees consume one-third of the settlement, that leaves just under $300 million for home sellers, or just over $13 apiece.
“Homeowners will get a cup of coffee, and lawyers will get millions,” Hahn said.
The total settlement pool is expected to reach about $2 billion once payments are included from large brokerages such as Re/Max, Anywhere, Keller Williams and others still negotiating, the Consumer Federation’s Brobeck said. That would raise individual payments to $63 per seller.
“But,” Brobeck added, “the main goal of the litigation was to change industry policies and practices, and that will certainly occur.”