Will the NAR Settlement Lower Home Prices? What Buyers and Sellers Need to Know

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Meet Heather

Debbie: Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and today, as promised last week, we're talking about the NAR lawsuit — the National Association of Realtors. What does it mean for you, buyers? What does it mean for you, sellers? Today I have Heather with us. Heather is a licensed loan officer on my team, she's also a licensed real estate agent, and she earned her degree from Southwestern with a focus on real estate law. I felt we couldn't get a better person's opinion: she can look at the lending side and the real estate side, as an agent herself, with the legal education on top.

This story is all over the place — agents posting about it, TikToks, articles. I want to take it from a different side: talk to buyers and sellers about what it means to them, and how things are going to change. I've had listeners reach out and say: you're preaching first-time buying, I'm barely scraping together my down payment and closing costs as it is — am I still going to be able to buy if I can't come up with another two and a half or three percent to pay an agent to represent me? And I'm hearing a lot of lashback the other way too: people saying agents get paid too much, I could do this myself, just have an attorney write the contract. So we'll dip a toe into what a real estate agent actually does for you, too. I'm not here to hype this up for views — this is about educating my listeners.

What the lawsuit was about

Heather: Basically — I believe it started in the Midwest — there were sellers, and I believe some home buyers, who were upset that they didn't realize commissions were negotiable. And commissions are always negotiable: when you list a home and agree to pay, say, 5%, that 5% is negotiable — you could pay 10% or 1% if you wanted. But these clients felt they didn't have the ability to negotiate, so they filed a lawsuit. Time goes by, there's a ruling, and NAR — which oversees pretty much any licensed Realtor whose brokerage chooses to be part of it and use that designation — lost, you could say. There are payouts happening.

The gist of what came out of it: number one, commissions are completely negotiable. Number two, everybody in the transaction — agents, brokers, buyers, sellers — should be transparent about how much is being made, and everybody has a say in it. The sellers felt they'd been handed terms and told: you don't have a choice.

Debbie: So the sellers wanted everybody to understand what's being paid, so negotiations are more fair.

Heather: Correct. They felt they should be able to negotiate whether they even wanted to pay the buyer's agent — which has always been an option, just not traditional — and how much. And from the buyer's side: what if we don't want you to pay our agent two and a half percent? The whole idea is bringing everybody into the mix, out in the open.

Debbie: And I wouldn't even call it a win — they settled.

Heather: Right. NAR came to the table and said, this is what we're willing to do. Some brokerage firms — I know Keller Williams, RE/MAX, and a couple of others — had already settled. It still has to go in front of the judge and be accepted, but it's highly anticipated that it will, and everything we're talking about is supposed to go into effect sometime in July. Each MLS system may take it how they want and move it up before then.

Will home prices come down?

Debbie: The first thing I keep hearing in the news — because they love headlines — is that real estate prices are going to come down. That's one of my favorites.

Heather: Realistically, I would not anticipate that — and I'd love it, especially being in California. Take a round number: a million-dollar home, where the seller would traditionally pay the buyer's agent 2.5% — that's $25,000. The hope is the seller says: I'm not paying a buyer-agent commission, so I'll list at $975,000. Never going to happen. If your neighbor's home sold for a million dollars, why would you sell for 975? When seller-paid buyer-agent commissions came into common practice decades ago, the idea was that it helped the buyer finance that cost into the price of the home. They're hoping to rewind that — and human instinct just doesn't work that way. We all believe our million-dollar home is worth two million; we want the most we can get.

Debbie: And if the seller is unwilling to pay the commission, here's what actually happens: a buyer who really wants the house says, we'll offer you more so you can pay our agent. We already see it constantly with closing costs — a buyer offers $510,000 on a $500,000 listing and asks for $10,000 back, which nets the seller their price. I think we'll see a lot of that, and in hindsight I think it ends up driving prices higher, not lower.

What's leaving the MLS

Debbie: Right now, agents put a listing into the multiple listing service, and the MLS actually shows how much commission is being offered to the buyer's agent. Really it's the listing agent agreeing with the seller on a total fee, then choosing to share part of it with an agent who brings a buyer. A lot of people didn't understand that's how it worked.

Heather: Right — in California, the listing agreement's first page has the commission section: the total, and a few paragraphs down, what you're authorized to advertise to the buyer's agent, as a flat fee or a percentage, often split down the middle. That's going away. One of the big rules is that agents can no longer advertise buyer-agent compensation in the MLS at all. (It even shows on Redfin and Zillow today if you scroll far enough.) They want it negotiated in the contract instead: when you make the offer, you either say I'll pay my own buyer-agent commission, or seller, I'm asking you to pay it, or we split it.

Debbie: Part of the suit was about steering, too — the claim that buyers' agents wouldn't show homes offering lower commissions, steering buyers away, which is absolutely illegal. There were real things this lawsuit was trying to repair. I just feel we've got a bit more damage at this point from what they did do — and a lot of it will be getting used to it, adapting, and working together.

Buyer broker agreements

Debbie: So if I'm an agent and I don't know what I'll be paid on a home, I can't work for free — I need something from the buyer. Talk about the buyer broker agreement, because it's been around a long time, but a lot of agents never used it. If I were a broker, I'd require one on every transaction now.

Heather: It's just like a listing: you don't work a listing until the agreement is signed. Here in California we have the buyer broker agreement — a contract between the buyer's agent and the buyer detailing what I'm going to do for you, the price range I'll show you, how long we'll work together, and what I'll be paid for that service: by the seller, by you, or a combination. Some agents we work with already do them on every client. So before you go out with a Realtor, be sure you're committed — you're signing a contract.

And understand it from the agent's side: it's really hard to commit to somebody and not have them commit back. I sold real estate for years — I once spent over two years with a client who never bought a house, through no lack of trying. You write offers, nothing pans out, and you don't make a dime. That happens quite often. Now it's: here's what I'll do for you, here's what I'm paid — and a good agent was always going to show you every house that fit you regardless of the commission on it.

Debbie: So to boil it down: interview your agents the way you'd interview an attorney. Once you sign, you're saying — whether I pay you or a seller pays you, I'm responsible for X percent. Do your due diligence and pick the team that's best for you. That's number one.

Number two: do not panic about signing at 2.5 or 3%. You'll start seeing discount agents come out of the woodwork saying “I'll work for 1%” — trust me, you do not want a discount agent; you want a real person, a full brokerage, working for you.

Heather: And to be fair — you don't have to sign anything, because you don't have to use a Realtor at all. That's part of what the case opened up. If you've bought and sold seven houses and want to represent yourself, by all means. But if you plan on having representation — somebody on your side — anticipate signing a contract.

Debbie: And here's the part that matters: you can have that conversation with your agent. “I have this much for my down payment and closing costs. If I have to pay you out of pocket, I'm back on the fence saving. So please only show me houses where you can get paid.” Now it's not the Realtor steering the transaction — it's the buyer steering it, and that makes sense, because it makes sense to have somebody in your corner.

Behind the scenes

Debbie: And let's be honest about the wall they've put up — “nobody can know, show them blind.” Come on. Agents go to board meetings and pitch their listings. They text each other, they call: my buyer cannot pay — would the seller raise the price to cover it? Is the seller offering anything?

Heather: People don't realize how much of that already goes on. Say Debbie wants to buy a house, she's got $30,000 to work with, and she can't pay a buyer's agent on top. As her agent, I call the listing agent: I have a great client, pre-approved, ready to go, but she's at her max — is the seller willing to contribute? Maybe the seller pays 2.5%. Maybe 1% — then can we raise the price to cover the rest? All of that happens after you've talked it through with your buyer: if the seller won't pay, can you split it? If not, do we increase the price? What would you prefer? It's been working like that for a long time in counters anyway — the settlement just puts it out in the open.

Sellers: offer a commission or shrink your pool?

Debbie: Now the seller side. At the listing table you now decide: do I offer to cover the buyer-agent commission or not? It's tempting — pay 3% instead of 6%, keep more money. But remember the conversation we just had: buyers are steering which homes they can afford to look at. Are you willing to shrink the pool of people who can even consider your property?

Heather: It's going to depend on the home. What buyer does your price point attract? A first-time buyer scraping together every penny, or a luxury buyer who doesn't care? If you're a move-up home or perfect for a first-time buyer, you probably know they'll need your help. Or maybe you need every dollar out of the house for your own next step. You can also refuse outright, or take it offer-by-offer as they come in. Every seller will come at it differently — and honestly, for some buyers it's not that they're unwilling to look at your home; if they're short $10,000 they can't get, they're incapable, and that's not the house for them.

Debbie: Nobody should be putting their plans on hold over this, though. If you'd saved your down payment and closing costs, there is a way to work through it. The most important thing in all of it: get pre-approved, and make sure your loan officer and your real estate agent are talking. It's mandatory now. And my opinion? The short end of the stick in this lawsuit went to the buyer. It's not making homes cheaper — sellers aren't selling for less — and buyers are the ones on the hook for commissions unless they buy homes where sellers will help. Sellers, keep that in the back of your mind if you want the most buyers coming through your door.

VA buyers and the commission rules

Debbie: Here's why the lender conversation is critical: the loan program determines how much a seller can pay on your behalf — and you can very quickly ask for more than your program allows. Take a veteran buying with zero down, who needs closing costs covered and the commission handled.

Heather: And veterans are not allowed to pay a buyer-agent commission. So the agent has to write the contract differently: it can't be a credit toward costs the buyer then pays — in that verbiage the buyer is still paying. It has to be written seller to pay buyer-agent commission of X, with any closing-cost credit separate. There was a lot of talk on the industry calls that lenders would just change their rules and let these costs be financed — and Fannie and Freddie are saying no, we won't, and VA has no plans I'm aware of to change either. So if a house isn't offering the commission and the seller won't pay it, that VA buyer may simply have to go to the house next door. We've just hurt the veterans in this — and you have to know all of it going in.

Seller-credit caps by loan program

Debbie: For FHA, the maximum you can receive from a seller is 6%. So if a buyer needs 3% toward closing costs and 3% to cover their buyer-agent commission — a 6% credit — no problem, good to go. But on a conventional loan with 3% or 5% down — anything under 10% down — you cannot get a credit bigger than 3%. With bigger down payments, conventional can go as high as 9%. And on an investment property, no matter how much you put down, you're capped at a 2% credit. This is why the pre-approval and the agent-lender conversation come first: know your budget, show your funds to close, and shop for your agent — interview multiple people if that's you. Buyers, you're going to be signing some contracts; that's what's different. Sellers, understand what limiting the commission does to your buyer pool.

What agents actually do

Debbie: Agents have gotten a bad rap all over social media through this, and it's been disgusting. I've been in this industry 30 years — I started as a real estate agent, and I moved to lending when I was pregnant with my oldest, because agents work 24/7, 365. Nights, weekends, holidays — and during the day too, coordinating with the lender, escrow, title, the termite company, meeting the physical inspector and the appraiser.

Heather: And the best agents put out fires you never see. The goal is that the transaction feels smooth to you — you know what's happening, but you're not carrying the stress of it.

Debbie: I have a transaction right now where the buyer's agent has had to ask the seller's side — I am not kidding — probably 19 or 20 times for the same document with the seller's signature. I can't clear the loan to close without that fully executed contract, docs are supposed to go out tomorrow, and the buyers have no idea; they're at lunch thinking everything's fine, because their agent is handling it. Buying a home is one of the top three most stressful things in life. Imagine representing yourself: you're at work teaching, and your phone is going off every five seconds — call the seller, did the seller respond, where's the signature? That's what your agent absorbs for you. We're going to do a whole follow-up show on what an agent does for a buyer and for a seller — and what agents really take home, because by the time you average it out, a lot of them are closer to minimum wage than you'd ever believe.

Q&A: new construction

Debbie: Priscilla — a great agent out of Texas who we work with all the time — asks: “I wonder how this will work with new construction?” My guess: the builder is literally the seller, and most builders just want buyers in the door, so they'll keep offering commissions — they just won't advertise them in the MLS. What do you say, Heather?

Heather: The majority of new home builders do work with real estate agents to bring clients in, and I don't think that really changes — you'll just call and ask, are you cooperating with brokers, and they'll say yes or no. And it is super important to have representation when you buy new construction: that really nice person meeting you at the model home works for the seller. An agent called me recently about a client looking at new homes in Los Angeles, and I asked — is there a Mello-Roos? Is there an HOA? He didn't know. Those are the questions a buyer's agent knows to ask, and buyers often don't.

Q&A: agent first, or lender first?

Debbie: One of our regulars — a first-time buyer working toward his goal — asks: “Is it necessary to already have a house in mind before you contact a real estate agent?” No — and honestly, before you contact the real estate agent, you should be contacting the lender. The agents watching have loved everything I've said today, but I won't support agent-first: the lender is your number one phone call.

Heather: Do both — but the lender very first. What you qualify for may not be what you want to spend: you might qualify for a million and only want to spend $700,000. As a Realtor, I want to know that when I show you $700,000 homes, you're qualified. The last thing anyone wants is to run out to a gorgeous million-dollar house and then find out. It's like sitting in the Ferrari at the car show and then qualifying for the Honda — it's the disappointment factor, and it's really hard to go back.

Debbie: Or the reverse — you look at $700,000 homes, get discouraged about the bedrooms and the backyard, and never learn you could have had them at what you actually qualified for. Talk to the lender first, always.

Wrap-up

Debbie: We usually keep this to 30 minutes and we're at an hour, because nothing in this topic isn't important. Next week Heather and I are back to go through everything a real estate agent does for a buyer and a seller, what it costs them to do their job, and what they actually earn — before I hear one more person complain that agents make too much money. Ask your questions in the feed and we'll answer what we can.

If you want the link when we go live, text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — and you'll get one text a week with the topic and a link to join, no spam. That's also the office number if you'd like to talk with me or the team. We're live every Wednesday at 1 PM Pacific on YouTube, Facebook, and Instagram. Have a fantastic rest of your week and happy Easter — we'll see you next week.