Real Estate Investing
The End of  6% Commission for Realtors: The Impact on Real Estate Dynamics

The End of 6% Commission for Realtors: The Impact on Real Estate Dynamics

In the world of real estate, the end of 6% commission for realtors has come with the NAR lawsuit settlement. What will be the impact on real estate? The 6% commission structure has long been the norm, with sellers typically paying both their listing agent and the buyer’s agent. However, now with the National Association of Realtors (NAR) lawsuit settlement, everything will change. How will this change the real estate game for homebuyers and real estate investors?

The Current Commission Model

First, let’s talk about how the current commission model works. If someone wanted to sell their home (seller) they would hire a listing agent. A potential buyer would also have their own real estate agent to represent them. As of now, when a property is sold, the seller typically pays a total commission of around 6% of the sale price. This commission is typically split evenly between the listing agent (representing the seller) and the buyer’s agent.

This system has been widely accepted for decades, but there has been criticism due to the lack of transparency and potential conflicts of interest. The idea of paying the buyer’s agent a commission, when their job is to get their client a better deal, can be irritating to the seller. Some seller’s feel they are paying to lower their own sale’s price, which results in less profit. However, a few sellers had enough and filed a class action lawsuit, Sitzer v. the National Association of Realtors. With the NAR lawsuit settlement, NAR has agreed to end their current commission model. Along, with the settlement, comes many changes and a huge impact on real estate.

The End of  6% Commission for Realtors: The Impact on Real Estate Dynamics with NAR lawsuit settlement

End of 6% Commission Impact

The end of 6% commission and the impact it will have, has been debated since the lawsuit (and before). Regardless, the NAR lawsuit settlement ended this debate. There are many pros and cons to changing how real estate has been purchased and sold. Not surprisingly, there are a lot of emotions from realtors and home buyers/sellers. Therefore, let’s look at what the potential outcomes can be.

Shift in Negotiation Power:

First, the number one complaint is how it will negatively impact first time home buyers or just home buyers in general. With the end of 6% commission could lead to a shift in negotiation power between sellers and real estate agents. Without the traditional commission structure, agents may need to negotiate their fees directly with their clients, potentially leading to more transparent pricing and greater competition among agents.

In contrast, the NAR lawsuit settlement will be costly on the buyer side. Losing the benefit of the seller paying for their agent’s commission can increase costs. Buyers will have to save up for not only the downpayment, but their commission as well. With house buying being expensive already, many buyers may opt out of having representation. This means the seller will have an advantage during negotiations over new inexperienced buyers.

Impact on Consumer Costs:

While the elimination of the 6% commission may seem beneficial for sellers initially, there’s a possibility that the costs could be shifted to buyers in the form of higher purchase prices or additional fees. Without sellers covering the buyer’s agent commission, buyers may need to factor these costs into their purchasing decisions, potentially impacting affordability.

However, with technological advances like Artificial Intelligence (AI), the fees and prices are hard to justify anymore. Initially, realtors may push fees that may compensate for the loss of their commission. But, buyers may push back and drive prices down over time, regardless of the NAR lawsuit settlement.

The End of  6% Commission for Realtors: The Impact on Real Estate Dynamics with NAR lawsuit settlement

Impact on Realtor Compensation:

Secondly, the compensation for real estate agents will shift. Many agents believe the commission is justified due to the amount of work they do for a sale. However, the NAR lawsuit settlement agreed to end the practice of requiring commission. The elimination of the 6% commission model could mean a significant change in compensation structure. Real estate agents may need to adapt their business models and go for flat fees, hourly rates, or retainer fees. This shift could also impact the recruitment and retention of agents within the industry.

However, this may have a positive impact on real estate by weeding out the “bad realtors.” During the housing market boom, an influx of new realtors joined the game. The houses were flying off the shelves and these realtors were able to make easy money without doing much. This led to a negative view of the real estate agent profession. The loss of the easy 6% commission may motivate these “bad apples” to leave.

The End of  6% Commission for Realtors: The Impact on Real Estate Dynamics with NAR lawsuit settlement

Impact on Real Estate Industry

Again, the end of 6% commission could spark innovation and evolution within the real estate industry. Agents and brokerages will be forced to explore new business models and fee structures to remain competitive in a changing market landscape. This means they will have to leverage technology, digital platforms and AI to play a larger role. This is already done in automating lists of potential homes to homebuyers. An agent inputs the buyers criteria in the Multiple Listing Service (MLS), and it automatically sends the buyer a list of current homes for sale. Not to mention, many buyers (like myself) hunt potential homes on their own online. Therefore, the industry will have to adjust to reduce costs.

How will this new real estate world change in regards to regulations and legalities? The impact on real estate regulatory and legal activities will be major. Right now brokers and realtors are scrambling to figure this out. There will have to be clear communication on what to expect in realtor and client agreements. However, we will have to see when they are implemented.

The Impact is Yet to Come

Whether NAR lawsuit settlement, which brings the end of 6% commission in real estate, is good or not, it is happening. It will undoubtedly have a huge impact on real estate. It will have far-reaching effects on agents, consumers, and the industry as a whole. However, it may promote greater transparency and competition. Additionally, it will push the industry to be innovative and maybe weed out some of the “bad realtors.” However, only time will tell on whether or not it was a good decision.

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