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The NAR Settlement How It Could Impact Buyers and Lenders

The NAR Settlement How It Could Impact Buyers and Lenders

By now, you have probably heard of the agreement reached between the National Association of Realtors (NAR) and a group of home sellers that took them to court in a $418 million lawsuit over broker commissions. The settlement effectively ends a longstanding practice that has governed how real estate agents and brokers get paid. How will the settlement impact buyers, mortgage lenders, and mortgage brokers?

Buying and selling homes is complicated. So there are a lot of factors to consider above and beyond the settlement itself. Also bear in mind that the settlement still needs to be approved by a court. Only when that happens will we begin to see the effects of the agreement.

What the Settlement Accomplishes

The lawsuit in question asserted that both sellers and buyers were being treated unfairly by brokers commiserating to keep commission rates high. For decades, the standard practice for paying real estate agents and brokers has been to charge the seller 6% of the sales price. The amount is split between buyer and seller agents.

Buyers and sellers have been largely unaware of the fact that commissions are negotiable. Sellers had simply assumed there was no other choice but to pay the 6% and be done with it. That being the case, the sellers that brought the lawsuit claimed the longstanding practice both artificially inflated sales prices and negatively impacted buying power.

In settling, the NAR agreed to pay damages and eliminate their current rules on commissions. A new set of rules governing commissions will be implemented in the near future. Among the new rules is one that prohibits agents from publishing their compensation on MLS listings, effectively stifling the practice of steering buyers to the most expensive houses in order to earn the highest commissions.

Potential Impact on Buyers

The impact of the settlement will be felt more by sellers than buyers. Sellers will no longer be responsible for paying buyer agent commissions. That implies a negative impact on buyers as well. They will have to pay their agents out of pocket. On the other hand, the settlement could lead to more buying power for those in the market for a home.

Theoretically, sale prices should be comparatively lower because sellers will not be tempted to build in an extra 6% to cover commissions. The buyer will still have to cover his own broker fees, so that needs to be considered.

Another possible benefit for buyers is the ability to negotiate lower broker fees. The general consensus is that brokers and agents will be forced to compete, thereby keeping fees in check. The net effect for buyers is spending less on commissions and more on their homes.

Potential Impact on Mortgage Lenders and Mortgage Brokers

The impact on mortgage lenders and mortgage brokers is expected to be minimal. Nonetheless, lenders may be able to qualify their clients for larger amounts due to lower broker fees and subsequent closing costs. On the other hand, the settlement could create a little bit of uncertainty that requires mortgage lenders/mortgage brokers to modify their practices moving forward.

As a Colorado mortgage broker, we believe it is too early to tell how the settlement might impact our business. It seems likely that the impact on buyers and sellers will be more pronounced and more immediate. Nonetheless, we will keep an eye on things as we continue to work with clients to find competitive home loans.

No doubt the NAR settlement is a historic one. Eliminating long-standing rules dictating how brokers get paid changes a lot. Here’s hoping that everyone benefits in the long run. That is the best possible outcome.

If you’re looking to work with a trusted Colorado mortgage broker, contact us today or book an appointment to discuss your loan options.

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