The real estate industry is on the cusp of a seismic shift that has been years in the making, as a 6% commission on home purchase transactions may no longer be the standard.

What Is the NAR Settlement?

At the heart of this legal battle is the National Association of REALTORS®, or NAR, a powerful trade group that has long governed the rules and regulations for real estate agents across the United States.

For years, NAR has faced scrutiny and multiple lawsuits from home sellers who claimed that its policies regarding listings on the Multiple Listing Service, or MLS, have unfairly propped up agent commissions. The issue lies in the requirement that brokers advertising a home for sale on the MLS offer upfront compensation to a buyer’s agent.

This practice, which has been in place since the 1990s, has been heavily criticized for stifling competition and forcing home sellers to pay inflated commissions to both their agent and the buyer’s agent.

1. Commission Changes

As part of the settlement, NAR will no longer mandate upfront compensation to buyer’s agents on the MLS. Instead, sellers can negotiate directly with buyer’s agents, potentially leading to reduced commissions and increased competition.

2. Impact on Buying Costs

Many predict that the commission on the buyer’s side will almost certainly change and that buyer-agent commissions will likely be reduced. Many analysts predict that agent commissions could drop by as much as 30%.

3. Impact on Home Buyers

Buyer-agent compensation cannot currently be rolled into mortgage loans. Based on current agency requirements and policies, broker compensation cannot be financed under home loans, and this is not likely to change in the near term. As a result, buyers may have to directly provide funds for any compensation.

The settlement may make it easier for home buyers to negotiate fees with their own agents and could lead more buyers to forgo using agents altogether, which has the potential to drive down commission rates.

4. What Does It Mean for My Relocation Program?

If buyers are responsible for paying their agents directly, reimbursements by mobility programs could become taxable to employees. Companies will want to consider whether they gross up those taxable reimbursed expenses for their employees.

It is expected that most programs would initially treat the expense as they treat other taxable relocation-related expenses. There will certainly be a change in the cost of employee home-sale benefits. Revenue earned by relocation management companies through real estate referral fees may also be impacted.

The settlement requires formal approval by the federal court before it becomes effective. Until then, Odyssey remains vigilant in closely monitoring any further developments and changes related to the NAR settlement that may affect your relocation program or policies.