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One of the biggest changes ever to the residential real estate market is slated to go into effect on Saturday.
In March, the National Association of Realtors finalized a landmark class action settlement for $418 million, which will remove rules on sales commissions for brokers and agents.
Starting Saturday, the standard 5% or 6% starting commission sellers usually pay will no longer exist. Agents can negotiate with the seller for their rate. Some experts predict commissions will fall to 4%. This is a massive change for agents, brokers, and Realtors who will no longer be subject to receiving an automatic commission payment for selling a home.
Related: Barbara Corcoran Sounds Off on NAR Settlement: 'It's a Scary Time for Real Estate Agents'
"These changes help to further empower consumers with clarity and choice when buying and selling a home," NAR President Kevin Sears said in a statement. "I am confident in our members' abilities to prepare for and embrace this evolution of our industry and help to guide consumers in the new landscape."
What does the NAR ruling change?
Starting August 17, real estate agents are prohibited from disclosing compensation on more than one listing service but can share those details on other mediums, including on the phone and in person.
According to economists' analysis earlier this year, real estate commissions for agents are estimated to drop by as much as 30%.
Real estate agents often split the commission with a buyer's agent. Now that there is no standard commission, buyers' agents must discuss compensation upfront in a buyer agreement before looking at properties together. This way, the potential buyer knows upfront if they have to pay their realtor or if the seller of the home they're looking to purchase is covering the cost.
Related: U.S. Mortgage Rates Are at the Lowest Level in 15 Months — Here's Why
Some Realtors are warning that this could lead to more buyers forgoing using a real estate agent altogether, which could lead to more added costs for buyers. Others contend that the seller's commission was often "baked" into the sales price, which already inflates the cost for buyers.
The new laws go into effect just days after mortgage rates in the U.S. hit a 15-month low.
"Change is nothing new to the real estate industry. What I know for sure is that real estate brokerages and their agents are some of the most resilient people in the world," real estate tycoon Barbara Corcoran said of the settlement. "They're creative and tough, and this opens the door for agents to use that resilience and creativity to come up with new and better ways to service their home sellers and customers."
The final approval hearing for the NAR settlement is slated for November 26.
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