New York Elder Law Attorney
The National Association of Realtors (NAR) has agreed to pay $418 million over the next four years to resolve class action lawsuits brought by home sellers who said they were forced to pay inflated commissions to real estate agents.
This is big news for homeowners and seniors thinking about downsizing. Under the settlement, each seller can negotiate the commission rate with their broker and pay only their own broker. If the buyer wants to spend their broker 2%, it’s their rate and responsibility to pay. The seller does not need to pay both the selling agent and the buyer’s agent.
The lawsuits said the NAR rule requiring home sellers to pay commissions to agents and buyer’s agents inflated fees was price fixing. The class action lawsuits also questioned a NAR rule requiring their agents to list homes on NAR-affiliated databases—Multiple Listing Services— to sell the houses.
Over twelve copycat cases followed the initial lawsuit.
Approved by the court, experts expect home prices to drop and the residential real estate market to become more active than it has been. The cost of selling and buying homes will drop dramatically because the agent’s sales commissions will be cut by as much as a third.
Let’s say you have a home selling for $1 million. $60,000 of the sale will go to real estate agents: half to your selling agent and the other half to the agent who brings a buyer. For the average American, buying a modest home for $400,000 means the seller pays around $24,000 in commissions.
Under the settlement, the seller’s agents can’t offer commissions to buyers’ agents. One expert cited by The New York Times believes this will let sellers and buyers force rates down and comparison shop for real estate agents to work with more transparency.
NAR rules, which have dominated the American housing market for decades, require listing agents to state the commission a buying agent receives if they bring a buyer to the sale. This led buyers’ agents to direct clients to more expensive properties.
What could this mean to seniors in residential markets like New York?
Prior generations sold their homes to move to warmer climates and put extra cash in their retirement accounts. Boomers have been staying put because new housing is pricey, and seniors are reluctant to give up their low-interest mortgages if they have one or to take on a new mortgage if they don’t. However, the settlement terms of this class action lawsuit will change the cost of selling a home and could make selling their home much more attractive to boomers— and open the housing market for a new generation.
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