If you recently sold your home, you might get part of your realtor fee back

Big changes are happening in the way people buy and sell homes in the United States. The National Association of Realtors settled a lawsuit last week that could change the way real estate agents are paid, eliminating the traditional 5-6% agent commission. This is causing a reckoning for buyers, sellers and real estate agents. Here are six things you should know.

What happens if you already sold a house?

As part of the settlement, the National Association of Realtors agreed to pay $418 million over the next four years. This is in addition to the $210 million that several brokerage firms had already agreed to pay. Lawyers will receive a portion of that money, but the rest will go to people who sold their homes in recent years and paid what critics say were inflated real estate commissions. Eligibility depends on where you live, but in some parts of the country, the agreement covers people who sold homes even a decade ago.

"We don't know the exact number, but we estimate it will be around 40 or 50 million" people, says Benjamin Brown, co-chair of the antitrust practice at Cohen Milstein, one of the law firms involved. in the case of class action.

To find out if they are entitled to compensation, sellers can consult the lawyers' website: www.realestatecommissionlitigation.com.

How will this change real estate commissions?

For decades, the norm in this country has been for the person selling a home to pay both their own agent and the buyer's agent. What's more, the buyer's share of that commission had to be specified in order to advertise the house on the large regional listing sites. Real estate agents insist they never set those commissions, but in practice, the public notice worked to set a standard, often in the neighborhood of 5 or 6%, split between the seller's agent and the buyer's agent.

For a home priced at $400,000, which is close to the national average, that equates to between $20,000 and $24,000 in commissions, much more than people in other countries typically pay. In Germany, commissions average 4.5%. In the UK, they are below 2%.

Starting in July, sellers will no longer have to pay a commission to the buyer's agent. Proponents say that should lead to more negotiations, more competition and, ultimately, lower costs.

What does increased negotiations mean for buyers and sellers?

There will be more opportunities to compare prices and probably a wider range of services, from luxury agents who charge a premium price to discount agents with more limited services, similar to what exists in other markets such as stockbrokers and brokers. trips.

Sellers can negotiate a flat fee to market their home, unrelated to the sales price. Buyers can purchase services a la carte, paying less if they do their own home search online and more if they want to be chauffeured to open houses.

Many sellers may decide not to pay the buyer's agent, leaving buyers to bear the cost themselves, or go without an agent altogether.

However, overhead costs are expected to be significantly lower. economists of the Federal Reserve Bank of Richmond They estimate the changes could save home buyers $30 billion a year, with most of those savings coming out of real estate agents' pockets.

What does this mean for agents?

Agents are still analyzing what this could mean for their businesses. When rates become more negotiable, agents will have to defend their value. But the best agents feel like they already do.

"Do I think real estate agents have to learn to do business differently? Absolutely," says Kevin Wilson, president of Greater Nashville Realtors. "But I also think this is a wrinkle in the landscape. Not a landmine."

A drop in commissions could lead some agents to pursue other lines of work, but that's not necessarily a bad thing. The United States has between 2.5 and 3 million real estate agents, far more than any other country, relative to the size of its real estate market. For example, the United States has approximately six times as many home sales each year as the United Kingdom, but 26 times as many agents.

"Are we seeing agents who work with buyers starting to get out of the business because they just aren't getting as many clients?" asks Jovani Ortiz, an agent on Long Island. "These are the unknowns that most agents are looking at right now."

While the commission pie will likely shrink, it may be divided into fewer slices, so the remaining agents could end up making the same amount of money.

With home prices and mortgage rates already high, how will buyers pay their own agents?

While sellers have traditionally paid buyer's agents in the US (and included that expense in the sales price of their home), many sellers may choose not to pay buyer's agents in the US. future. In that case, buyers will have to pay their own agent out of pocket, in addition to the down payment and other closing costs. Finding thousands of dollars to pay an agent could be a challenge, especially for first-time buyers, who typically have limited funds and also the greatest need for guidance from an agent. First-time buyers accounted for just 26% of existing home sales in February, a record low.

"Many first-time buyers are already at the absolute maximum of what they can borrow," says Vanessa Perry, a professor at George Washington University Business School and a fellow at the Urban Institute's Housing Policy Finance Center. "They won't be able to find additional money to pay their own agent."

Home sellers could still agree through negotiation to pay the buyer's agent. But in a hot housing market, sellers may have little incentive to do so. Over time, buyers will be able to include the cost of their agent's commission into their mortgage, spreading payments over the life of the loan. But that will require a change in mortgage underwriting rules. Over time, lower real estate commissions should lead to somewhat lower home prices.

What should people who are thinking about buying or selling do in the next six months?

The agreement's changes to the commission's rules will take effect in July, just as many people will be buying homes ahead of a new school year. But it is unclear how quickly the landscape will change. Buyers and sellers may want to talk to their agent about the costs and benefits of moving before the deadline or waiting until the new rules take effect. Remember, commissions represent between $20,000 and $24,000 on a typical home. Still, that's just one factor to consider when deciding when to buy or sell, along with interest rates, the supply of homes on the market and life circumstances like a new job or a new family member.