NAR Settlement: Impact on NYC Real Estate Commissions

The recent NAR settlement does not prohibit NYC sellers from paying a buyer agent commission, meaning it doesn’t trigger immediate, sweeping changes to the brokerage commission model in NYC.

Since the NAR settlement took effect on 8/17/24, it’s largely been business as usual in NYC, with sellers continuing to pay the buyer agent commission on the vast majority of listings and most buyers continuing to be represented.

Savvy sellers in NYC have always found ways to pay less in commission, through alternatives such as 1% Full Service or Agent Assisted FSBO.

Similarly, buyers have always been able to lower their closing costs through buyer agent commission rebates.

In the near term, the NAR settlement has resulted in a slight reduction in buyer agent commission rates throughout NYC. Over time, the NAR settlement may lead to a significant reduction in the prevalence of buyer’s agents, but any such change will likely take years to materialize.

Ironically, listing agent commissions in NYC may increase because of the NAR settlement, as we explain below. Click on each section to learn more.

What Changes Are Required in NYC Under the NAR Settlement?

Near Term Effects of the NAR Settlement on NYC Real Estate Commissions

Long Term Outlook for NYC Real Estate Commissions Post-NAR Settlement

Could the NAR Settlement Increase Broker Commissions in NYC?

Other Impacts of the NAR Settlement on NYC Real Estate

All MLSs that have opted into the NAR settlement agreement as part of the Sitzer/Burnett lawsuit were required to implement several new policies as of August 17th, 2024:

• MLS is prohibited from displaying any offers of compensation to cooperating brokers. Note that this does not prohibit sellers from continuing to pay a buyer agent commission. It simply can’t be advertised on the MLS.

• Listing agreements and buyer representation agreements must contain a conspicuous statement that commissions are not set by law or any Realtor® association or MLS and are fully negotiable.

• MLS participants are required to have a written agreement when representing a buyer.

• Written buyer agreements must also contain specific provisions pursuant to the settlement.

Most NYC real estate agents aren’t NAR members because they belong to REBNY, which isn’t part of the National Association of Realtors. However, the NAR settlement still impacts NYC.

This is because REBNY and several national brokerages operating in NYC have opted into the NAR settlement. However, REBNY continues to negotiate its settlement terms and remains in active litigation.

In the near term, the NAR settlement is likely to cause a slight reduction in buyer agent commission rates throughout NYC. We’ve already noticed this trend: sellers who might have previously offered 3% may now opt for 2.5%, and those who considered offering 2.5% might reduce it to 2% in light of the NAR settlement and associated news coverage.

While the NAR settlement has certainly encouraged more sellers to flirt with the idea of foregoing a buyer agent commission altogether, this remains risky and uncommon since 75% or more of buyers are represented.

Let’s say you’re planning to list your NYC apartment for sale. Even if you strongly believe that over the long term, sellers will no longer foot the bill for buyer’s agents, are you willing to test your hypothesis on your most valuable asset? Doing so will surely put your property at a disadvantage relative to competing listings which are still overwhelmingly offering a buyer agent commission.

Keep in mind that there has always been the occasional listing that did not offer any commission to buyer’s agents. However, this is very rare in areas like Manhattan or Brownstone Brooklyn and is typically confined to less central locations such as South Brooklyn or Eastern Queens.

The NAR settlement has increased the odds that the prevalence of buyer’s agents in NYC may decrease over the long term.

Ultimately, the NYC brokerage industry might evolve toward a single-agent model, similar to the system in London and the UK, where commission rates are much lower and typically only one agent is involved in a transaction. However, such a shift is likely to be gradual and take years to materialize.

Keep in mind that there will always be buyers who actively seek out a buyer’s agent and are willing to cover the cost if necessary, much like some tenants in NYC who still choose to hire and pay an agent directly.

Ironically, the NAR settlement may yield an increase in listing agent commission rates in NYC.

Here’s why: The presence of a buyer’s agent significantly reduces the listing agent’s workload throughout a transaction. If sellers stop paying the buyer agent commission and buyers overwhelmingly refuse to pay a buyer’s agent out-of-pocket and therefore opt to be unrepresented, all this extra work must be shouldered by the listing agent.

Without a buyer’s agent, listing agents will have to take on the tasks traditionally managed by the buyer’s agent, such as educating the buyer throughout the transaction, setting expectations and handling the board package in the case of condo and co-op apartments.

This extra workload, particularly for more complex transactions like co-ops, could make listing agents less likely to negotiate their commissions, especially for lower-priced properties.

Furthermore, the additional regulations and negative publicity surrounding real estate agents because of the NAR settlement might lead to a reduction in the number of agents in the NYC brokerage industry.

If listing agents face increased workloads without any corresponding increase in compensation, some may leave the industry altogether, creating a supply-and-demand dynamic that could drive commissions higher.

We suspect that the NAR settlement may lead NYC real estate attorneys to increase their fees to account for the extra work they may shoulder in cases where a buyer chooses not to have representation.

Transactional residential real estate attorneys in NYC typically operate on a flat-fee pricing model when it comes to representing buyers and sellers.

If a buyer who would have otherwise chosen representation if the seller were paying the commission decides to go it alone to avoid paying a buyer’s agent out of pocket, it’s inevitable they may rely more on their attorney for advice and guidance throughout the purchase process.

Despite the shifts brought on by the NAR settlement, new developments are likely to continue offering high buyer agent commissions. These properties often require more effort to sell, and, for better or worse, higher commissions serve as crucial incentives for buyer’s agents.

In South Florida, buyer agent commissions for new developments can reach up to 8%, and in NYC, it’s not uncommon to see developers paying buyer agent commissions as high as 5%. The harder a property is to sell, the higher the buyer agent commission tends to be – a trend that is unlikely to change, even in light of the NAR settlement.