Correcting the Record: 9 Misconceptions Regarding the NAR Settlement & Real Estate Commissions

You’ve perhaps seen some sensational news headlines recently surrounding the March 15 announcement that the National Association of REALTORS® agreed to a proposed settlement to a class action lawsuit over the topic of how real estate commissions are paid.

Unfortunately, many of the things you’ve heard are misleading or downright false. I’m here to help dispel the myths, sort the fact from fiction, and help you understand what’s REALLY going on.

1. The Settlement Broke Up a “Cartel”

There are millions of agents in the industry, and we’re all competing against each other in our local markets – even when we work for the same broker or in the same office. Because we are almost all independent contractors, our brokers and managers legally can’t tell us when or how to do our work, let alone tell us how much to charge for our services.

The National Association of REALTORS® (NAR) is a trade association for people who work in the real estate industry; it is made up of more than 1.5 million professionals, including residential and commercial brokers, agents, property managers, appraisers and other professionals. Membership requires strict adherence to a Code of Ethics. The NAR does not set commissions. Commissions have always been negotiable between clients and agents.

2. 6% Was the “Standard” Commission

While many people assume commissions are a “standard 6%” they actually are not. In fact, the average real estate commission hasn’t been at 6% for more than 30 years.¹ Still, people somehow think that’s a rate the industry has been colluding together to maintain. Who is creating that perception, and why?! Furthermore, the portion of the commission offered to the buyer’s agent varies by location across the country, in local markets, and according to market conditions, just as the average price for homes does. There is no standard commission rate.

3. This Is the First Time Real Estate Commissions Have Ever Been Negotiable

During a campaign speech on March 19, President Biden, claimed that this is the first time in history real estate agents have agreed that people can negotiate lower commissions when they buy or sell a home. This statement is FALSE. Real estate commissions have always been negotiable. Always. And going forward they will still be if the terms of the proposed settlement are approved by the courts. (If you are unfamiliar with the class action lawsuit that has been working its way through the court system for the last several years, check out this related article, “Real Estate Commissions, the Class Action Lawsuit, & What it Means for You” for more information.)

4. Sellers Never Had a Say in How Much Buyer Agents Were Offered

When a seller lists with an agent, they agree to pay their listing agent a certain amount. The agreement specifies how much of that amount the listing agent will offer to a buyer’s agent if they bring a qualified buyer who purchases the house. Again, the amount the seller agrees to pay their listing agent is, has been, and still will be negotiable, and this includes being able to negotiate how much goes to the buyer agent.

**5. Sellers Will No Longer Be Allowed to Offer Buyers’ Agents a Commission**

FALSE. While the settlement proposes any offer of buyer agent compensation won’t be allowed to be displayed on an association-owned multiple listing system (MLS), sellers are certainly allowed to offer buyer agents a commission, and have their agent make it known through other platforms and marketing materials.

If sellers aren’t allowed to offer buyer agent compensation, the government would be cutting out a whole segment of eligible buyers – the veterans who have served our country. People who are serving or have served our country in the military can qualify for federally backed VA loans, which have different rules and parameters than other loan types such as FHA and Conventional. Currently, veterans are specifically prohibited from paying broker and agent fees when using a VA loan to purchase. ²

6) Anyone Who Sold a Home Before Is Entitled to Money From the Settlement (And Lots of It!)

In order to receive any money from the settlement, you have to be part of the class-action. But even if you are, don’t expect a huge payday. As is often the case, the ones who will have a substantial payday are the lawyers – they have asked for more than 33% of the total payout to compensate themselves – while the home sellers will each receive a small portion. The amount homeowners will receive has yet to be determined, although some have estimated after the lawyers take their 33%+ in fees, it may work out to be roughly $13 apiece. ³

**7) Real Estate Agents Have to Charge Less Now**

Nothing in the settlement says that agents must charge less for their services. Just as nobody could tell an agent they had to charge 6% before, nobody can tell an agent they’re not allowed to set their fees at whatever they like moving forward – agents may continue offering their rates as they are now. Again, commissions are negotiable. They always have been, they currently are, and they still will be.

8) Home Prices Will Drop Substantially

It is the market that determines the price, not agent commissions. The REAL reason the cost of housing is so high right now is a multi-faceted issue of supply & demand. Not only are we experiencing a lack of inventory as population growth over recent years has outpaced our new construction build rates, but factors including interest rates, inflation, and investor influence also play a role. (For a more detailed explanation of how these affect each other, check out this related article).

Sellers can only sell their house for as much as a buyer is ready, willing, and able to pay for it at any given moment in time. While commissions are often captured as an expense within the sales price of a home, they do not impact how much buyers in the market are willing to pay for a home. If buyer agent commissions are removed from the transaction, do you really think that difference will be passed along to buyers in the form of a lower price? NO! Imagine you are selling your home. Based on a comparable market analysis, you conclude it is worth $X. Are you going to now say, I’m going to list it for this much less since I am not going to pay a buyer’s agent? Certainly not. Sellers want the most money they can get when they sell. For more information on why it is beneficial for both buyers and sellers when a buyer has agent representation, check out these articles: “Why Sellers Love Buyer Agents,” and “Why Buyers Need Buyer Agents.”

9) The Settlement Is Good News for Buyers, Because They Can Avoid Working With an Agent and Save Money

Generally speaking, I couldn’t disagree more. Trying to save money by cutting out the buyer’s agent means that at a minimum you need to have a good understanding of the market, the value of the home you are purchasing, and be able to negotiate the best price possible for it on your own. Now consider our current shortage of available homes on the market – what if there are multiple offers? If you do go under contract, what happens if questions arise from the home inspection, or if there are issues with the appraisal? You want someone who is an expert in the field on your side.

Sellers also prefer working with buyers who have representation because they are more confident the deal will close smoothly. This might naturally lead to the thought, “Well, we’ll just use the same agent.” While this idea might seem convenient, using the same agent to work both sides of the transaction is risky. Imagine your favorite sports team is competing for the championship title. Do you think it would be a good idea for the team to show up without a coach? How about if they got their opponent’s coach to coach them? Dual agency – using the same agent to represent both sides – is rife with potential issues related to conflict of interest, and in fact is not even legal in some states.

Finally, take a quick peek back at #8 and keep in mind that just because a buyer is not represented by an agent does NOT mean a seller will lower the price.

Moving forward, for buyers who want to work with a buyer agent, the settlement will require them to sign an agreement for representation. This agreement will specifically define how much compensation the buyer agent will receive, and how it will be paid. Buyer agent compensation may still be offered by sellers, and even if it’s not, it may still be possible to negotiate it into the purchase price.

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