In a historic move, the National Association of Realtors (N.A.R.) has agreed to a $418 million settlement in a series of lawsuits filed by home sellers, challenging the traditional broker commission structure. This agreement, pending federal court approval, proposes dismantling the conventional 6% commission on home sales, signaling a shift toward a system where sellers are not solely responsible for commission payments. This decision’s repercussions will likely impact home pricing, commission determination, and payment responsibilities here in New York City and across the United States.
REBNY’s stance and differences from N.A.R.
The Real Estate Board of New York (REBNY) differentiates itself from N.A.R. by not requiring its agents to be N.A.R. members, thus not directly affected by the amended rules. Established in 1896, REBNY broke away from N.A.R. in the 1990s, representing over 15,000 local professionals and 800 brokerages. Despite the separation, N.A.R.’s settlement could still indirectly influence New York City’s market, with REBNY reviewing the implications to guide its members.
Changes to commission structures are imminent
Ahead of the N.A.R. settlement, REBNY has already initiated changes to its commission framework. The R.L.S. Universal Co-Brokerage Agreement now mandates that sellers directly offer compensation to the buyer’s agent, bypassing the seller’s agent. This update enables negotiation between the buyer’s agent and either the seller or the buyer, altering the traditional practice of a 6% commission split between the selling and buying agents.
Seller and buyer implications in New York
The evolving commission landscape may spare New York City from drastic changes, as sellers are likely to continue funding commissions, albeit through new channels. However, these changes could reduce offers to buyer’s agents, potentially affecting property visibility and time on the market. Buyers may also face additional costs if required to compensate their agents, potentially affecting affordability and market participation.
Go without an agent?
Buyers in New York City, faced with complex transactions, especially in the co-op sector, must decide whether to engage an agent or brave the market alone. While forgoing an agent can save on commission costs, the expertise and guidance an agent and other real estate professionals provides can be critical in navigating the complex and competitive New York real estate landscape.
Better service at a lower price?
As the settlement casts uncertainty on agent compensation, the real estate industry could see a shift towards more experienced agents providing enhanced services for lower fees. The settlement may inadvertently cleanse the industry of less competent agents, fostering a competitive environment that benefits consumers.
The impact of reduced commissions
With the potential for reduced sales commissions, New York’s home prices could experience a downward adjustment. Awareness of alternative commission models might lead sellers to offer less to buyer’s agents, possibly reducing overall transaction costs and, in turn, influencing listing prices to reflect the new economic reality.
Watch this space to see what changes emerge.