A Turning Point for Residential Real Estate: What It Means for Buyers and Sellers

In 2024, the National Association of Realtors agreed to a $418 million settlement in a class action case alleging antitrust violations related to residential real estate commissions. As part of the settlement, the NAR agreed to modify its rules governing the sharing of commissions between the brokers representing buyers and sellers through the Multiple Listing Service (MLS).

The resulting changes have disrupted long-standing practices in home sales, including how buyers and sellers engage and compensate agents. As these changes are introduced in local markets across the country, buyers and sellers alike face new decisions — and potential risks — when contemplating a purchase or sale. In this paper, we outline key considerations and offer practical guidance to help you navigate the evolving landscape.

What the Settlement Means

Prior to 2024, sellers in most states paid their agent a gross commission — typically 5% to 6%, with a portion going to the buyer’s agent. Depending on the state, the buyer’s agent in many cases was, legally, a co-broker with the selling broker. This created confusion and conflicts for both the buyer and the buyer’s agent.

Revised NAR rules and policies following the recent class action settlement, effective August 17, 2024, include:

• Listing agents may not offer commissions to buyer agents on the Multiple Listing Service (MLS), a database that aggregates property listings and is widely used by real estate professionals to share and access home sale information. However, compensation offers may still be made outside of the MLS.
• As a result, MLS platforms cannot allow agents to filter real estate listings based on the commission offered as was done prior to the settlement.
• Agents representing buyers must enter a separate written commission agreement with those buyers before showing them properties.

While these rule changes are reshaping many aspects of the residential real estate market, implementation has been uneven in different parts of the country, and many brokerage companies have yet to adopt standardized agreements. Here are some points for sellers and buyers to keep in mind.

Considerations for Sellers

Your commission decisions as a seller are more involved than in the past. Your broker may encourage you to take the simple approach: replicating the pre-settlement model by offering reasonable compensation for a buyer’s broker at a rate similar to what your broker might have shared in the past.

For many sellers, replicating the old model by offering compensation to the buyer’s broker may be an appropriate solution. Since the MLS, per the settlement, can no longer display broker compensation, you should understand how your offer will be communicated. In some states, such as California, a simple check box on the standard escrow form for residential transactions enables buyers to indicate that they expect the seller to compensate their broker.

But it’s no longer a given that the seller will pay the buying agent’s commission. For some high-value residential properties, we’re seeing a commission structure similar to commercial real estate transactions where buyer and seller pay their own advisors and brokers, with an indemnity against claims for commission by the other’s respective professionals.

And in competitive bidding situations, some buyers are seeking to distinguish themselves by offering to pay their agent’s commission. We’re still in early days: Time will tell whether these practices become more common and how, if at all, commission rates might be affected.

Considerations for Buyers

Understand what you’re signing: Homebuyers face the biggest changes. If you hire an agent to represent you, they will now present you with a formal commission agreement. These forms may be difficult to interpret and vary depending on the state, local MLS, and agency. All of the terms are negotiable, and it’s a good idea to seek advice before signing.

Watch for long-term commitments: Some commission agreements create long-term, binding obligations between the buyer and the agent for the eventual purchase of a home. These forms may be difficult to interpret and vary depending on the state and local agency. If you have an agreement with another buyer’s broker, make sure you understand its terms before you sign a new agreement. You may still have an obligation to pay the other buyer’s broker if you buy a home even though you have signed a new agreement with another agent.

If the form states that it is an “exclusive” agreement, you likely have an obligation to pay a commission to the broker if you buy (or possibly rent) a home during its term and an additional period after termination for any property a broker identified to you. This period may be very long; in printed forms, we have seen exclusive and tail periods as long as 360 days. We’ve also seen that what constitutes a property that was identified by a buyer’s agent to a buyer is not always clearly defined.

Clarify the scope: Depending on the agreement language, the obligation may extend to your family members or a domestic partner. And even if you sign a new agreement with a different broker, you could still owe a commission to a previous one.

Limit your exposure: As you navigate this process, consider these suggestions:

• Limit the exclusive and tail periods (the period the broker may still earn a commission after the agreement ends), especially if you are only seeing a few properties and are unsure you want to see others. You might propose seven days for the exclusive period and 60 days for the tail period.
• Put in writing that the commission applies only if you purchase a home identified by the broker.
• Require the broker to provide a written, regularly updated list of properties they have shown you, to avoid ambiguity.
• Consider limiting the geographic area and price range of properties.
• State the commission rate and provide that if it is paid in whole or in part by the seller, the commission is limited to the stated rate. If you choose to extend your relationship with the broker or terminate it, make sure you do so in writing.

Understand Your Obligations — and Your Options

The NAR policy changes have introduced new complexity into residential real estate transactions, especially around commissions and broker relationships. As a buyer or seller, clearly defining your obligations to a broker — while understanding where you have room to negotiate — can help you avoid surprises, build a more productive and transparent relationship, and protect yourself against potential claims.

If you’re considering buying or selling a home, Bessemer’s Real Estate Advisory team can answer your questions and help you navigate these changes. For more information, please contact your Bessemer advisor.