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March 29, 2024

Lawsuit settlement about realtors’ commissions unlikely to loosen tight Central Mass. housing market, Warren Group says

Photo | Grant Welker A home for sale in the MetroWest area

The Central Massachusetts housing market will see little immediate impact on prices or number of sales in the wake of a national $418-million settlement between the largest realtors trade association and homebuyers, according to the firm compiling data on the region’s home sales each month.

“Most likely, it’s not going to radically change the homebuying process,” Cassidy Norton, associate publisher and media relations director of Peabody-based real estate data firm The Warren Group. “It’s not going to have a huge impact on home prices, certainly not in Massachusetts.”

A portrait photo of a woman standing in front of a brick wall
Image | Courtesy of The Warren Group
Cassidy Norton, associate publisher at The Warren Group

The settlement announced on March 15 between the National Association of Realtors and home sellers brought an end to multiple class-action lawsuits filed against the organization. The lawsuits alleged NAR had violated antitrust laws by requiring brokers who were advertising a home for sale on the association’s Multiple Listing Service to offer compensation to buyer’s agents, leading to the current common practice where buyer and seller agents split a 5% to 6% commission paid by the seller. 

This allowed brokers to tell buyers they would help them find a home for no cost, even though sellers would typically include the cost of the commission into their asking prices. Critics of this practice say it leads to a situation where commissions become more or less standardized, with little room for negotiation. 

The settlement, assuming it's approved by the courts, will require NAR to pay out $418 million over four years to home sellers across the country, according to a release issued by the organization.

In what might have the most impact on the way homes are sold, NAR agreed to prohibit the practice of requiring upfront compensation to buyer’s agents on the MLS platform and to require realtors enter a written agreement with homebuyers in order to establish what they will charge for any services provided.

Even as the real estate industry scrambles to figure out the implications of the settlement, it seems unlikely that it will have any massive impact on Central Massachusetts’ real estate market, where prices remain high and inventory remains low, said Norton, from the Warren Group.

The most obvious and largest change is going to be the settlement’s impact on the way commission is structured, Norton said, but even the exact impact on that whole process is yet to be fully figured out.

She stressed that the settlement has yet to be fully finalized, but that the new requirement of signing a written agreement with homebuyers to establish commissions isn’t going to be a large disruption in Massachusetts, where such agreements are already common. 

“[The settlement] will potentially lead to a little bit more paperwork, but there’s plenty of paperwork in buying a house anyways,” Norton said.

With Massachusetts being a textbook example of a sellers market right now, Norton said sellers aren’t thinking too much about the price of commission anyways, as the limited amount of inventory is already allowing sellers to maximize their profits to unprecedented levels. 

The median single-family sale price in Massachusetts increased 10% on a year-over-year basis this February to $548,250, up from $498,369 the same time last year, according to Warren Group data. This figure was a new all-time high for February.

The median sales price for homes in Worcester County was $415,000 in February, a 6.4% increase from the median price of $390,000 seen in February last year.

“Nobody is underpricing their home just so they’ll have to pay less commission,” Norton said. “It’s going to be business as usual for the next few months. There’s not a big change coming anytime soon.”

The settlement, if approved, won’t go into effect until mid-July, meaning it will have no impact on the spring sale season, which is expected to see a continuation of trends seen in 2023.

“My advice to first-time homebuyers would be to secure a buyer agent who will work on their behalf in negotiations with sellers,” she said. 

NAR continues to deny any wrongdoing, saying that it only settled to prevent further disruption to members. The group has taken issue with the way media outlets, and even the president, have talked about the settlement.

“Some outlets have suggested that NAR previously set or guided commissions to a standard rate of 6%. Even President Joe Biden, in recent comments, misspoke in suggesting that the settlement makes commissions negotiable for the first time,” reads a post on NAR’s website. “You know that is false. NAR does not set commissions, and commissions were negotiable long before this settlement. They are and will remain entirely negotiable between brokers and their clients. And housing prices are dictated by market forces beyond members’ control.”

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