Clearing up 9 Misconceptions about the Recent Real Estate Settlement

Clearing up 9 Misconceptions about the Recent Real Estate Settlement

You’ve probably heard all sorts of things in the news regarding the recently proposed settlement that the National Association of Realtors announced regarding a court case over how real estate commissions are paid.

Unfortunately, many of the things you’ve heard probably aren’t completely (or even remotely) true, because they’re coming from people outside the industry, who don’t truly understand it themselves.

Here’s a breakdown of 9 misconceptions about the real estate settlement, to help you separate fact from fiction:

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 at the same company and office. Our brokers and managers legally can’t even tell us what time to work each day, or how to do our work, because we’re almost all independent contractors, let alone how much to charge for our services.

Beyond that, it’s hard enough to get agents to agree on whether or not open houses are worthwhile! Agents are fiercely independent, and most of us have our own (very strong) opinions on how to run our business. So there’s no chance the entire industry was in cahoots to inflate commissions.


2) 6% Was the “Standard” Commission

Another thing you’d probably find difficult is getting an agent to even say the word “standard” to describe anything regarding real estate. One of the first things agents are taught when we enter the business is that there is no “standard” commission, and we’re told to not even discuss commission rates at all with other agents. You should see how quickly agents pounce on any agent who even says the word “percent” in an online forum. Most agents want nothing to do with any discussion that even hints at the topic.

Beyond that, the average real estate commission fluctuates from year to year, and hasn’t even been as high as 6% since 1992, according to Statista! Yet, 32 years later, people somehow think that’s a rate the industry has been working together to maintain. Who is creating that perception, and why?!


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

Many headlines, and even President Biden, claim that this is the first time in history that real estate agents have agreed that people can negotiate lower commissions when they buy or sell a home.

Just refer back to #2 above and it’s obvious that people have been negotiating different commission rates for many years, otherwise, commission rates would be the same across the board from year to year.


4) Sellers Never Had a Say in How Much Buyers’ Agents Were Offered

Technically, a seller agrees to pay their listing agent a certain amount. Part of that agreement sets forth how much of that amount the listing agent will agree to offer to a buyers’ agent who brings a qualified buyer if they end up buying the house.

As mentioned above, the amount the seller agrees to pay their listing agent has been negotiable, which includes having been able to negotiate how much goes to the buyers’ agent.


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

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 buyers’ agents a commission, and have their agent make it known through other platforms and marketing materials.


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, while the home sellers each receive a small amount of compensation, which is yet to be determined.


7) Real Estate Agents Have to Charge Less Now

Nothing in the settlement says that an agent has to 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 — whether they choose to lower, or raise their rates, or the array of services they offer at any particular rate.


8) Home Prices Will Come down Substantially and Make Them More Affordable Now

Real estate market values are determined by supply and demand. 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 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.


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

This really depends upon who the buyer is…

Some buyers might feel like this is a win in that they can now opt to *not* have a buyers’ agent represent them, and avoid having the cost of a buyers’ agent in the purchase. But it probably won’t be that straight-forward.


First, sellers aren’t necessarily going to agree to accept a lower price than the market will bear, just because you don’t have an agent. Beyond that, buyers who try to go through the process without an agent may find it difficult to navigate the process on their own, or get the best results.

For those who want to work with a buyers’ agent, the settlement will require them to sign an agreement for representation, agree upon how much compensation their agent will receive, and possibly pay for the services of their own agent directly. However, the compensation may very well be offered by many sellers anyway, and even if it’s not, it’s possible to negotiate it into the purchase price.


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