When the deal is closed, real estate agents for both the buyer and the seller are paid commissions, usually by the seller.

This is a condensed version of how the home buying and selling process has worked for years. And this process is about to change. How real estate agents get paid will change on August 17, following massive settlement agreements as a result of numerous class-action, antitrust lawsuits brought by home sellers over the commissions they paid to real estate agents. The lawsuits were filed against the Chicago-based National Association of Realtors and real estate agents nationwide.

In March, NAR agreed to pay $418 million as part of a settlement to resolve disputes against the organization and its members. It also agreed to change its model rules. The settlement will be paid out over approximately four years, and about 50 million people will be eligible to receive funds from the NAR settlement. Some real estate agents chose to solve their own costumes before and after NAR’s agreement, and some are still ongoing.

The full NAR settlement is not expected to receive final court approval until November, with the U.S. Department of Justice indicates that the terms of the settlement may not go far enough.

NAR’s settlement came after a federal jury in Missouri issued a a final judgment of $1.8 billion Last October, NAR and several major real estate agents conspired to artificially inflate commissions on home sales. A similar case was expected to go to trial this year in Illinois federal court. The settlement resolved NAR’s role in both of those lawsuits plus two other class actions. NAR continues to deny wrongdoing, according to the union.

The lawsuit came to a head amid internal turmoil at NAR, which has undergone a series of leadership changes. Over the past year, NAR has seen two presidents and a CEO resigns following allegations of sexual harassment against its former president Kenny Parcell.

Here’s what you need to know about the landmark settlements and how the changes being implemented will affect Illinois buyers, sellers and real estate agents.

The lawsuits alleged that the broker compensation method was anticompetitive because it encouraged buyer agents to steer their clients toward sellers who offered higher commission rates in their listings on the Multiple Listing Service. The MLS is the main tool used by real estate agents across the country to market real estate listings.

Historically, the seller set the commission rate when listing the home for sale and then paid the fee to their agent, who split it 50-50 with the buyer’s agent.

NAR is changing its rules in two main ways. It requires potential home buyers to enter into written agreements – often called buyer agency agreements – with their agent that specify how the buyer’s agent will be paid. NAR is also removing compensation offers to agents in the MLS.

If a broker is not a member of NAR or do not use an MLS platform that complies with NAR’s rules, they will not be subject to these rule changes.

Some real estate agents still allow their agents to list affiliate commissions on their non-MLS property listings, while others do not. An affiliate commission is the amount paid to a buyer’s agent when a transaction is closed.

Redfin will allow sellers who want to advertise an offer of compensation to do so, but will not require it, according to a statement from a company spokesperson.

Compass agents will follow a similar practice, with a company spokesperson saying it will be an “agent-by-agent decision with their customers.”

A RE/MAX spokesperson said in a statement that while the company will not display compensation offers on the company’s website, each RE/MAX office is independently owned and operated and “it is up to the offices to determine what works best for their office.”

Laura Ellis, chief strategy officer and president of residential sales at Baird & Warner, said her firm will not allow its agents to list buyer or seller agent compensation on any platform.

“We’re not going to do that because it’s going to take us back to how we got into the situation we’re in now,” Ellis said.

Mike Golden, co-CEO of @properties Christie’s International Real Estate, said the company, like Baird & Warner, currently has no plans to list affiliate commissions outside the MLS.

“We feel that is in direct conflict with what the Justice Department’s goal is with the settlement,” Golden said.

On an Aug. 7 call with reporters, NAR said it would not tolerate “people who make attempts to circumvent these policy changes,” but declined to comment on specific brokers’ practices when asked after the call.

Homebuyers will now be required to enter into written contracts with their agents before the first tour of a home if they work with an agent who is a member of NAR or an agent who uses an MLS that follows NAR’s model rules. The contracts will dictate how much the buyer will pay — in either a dollar amount or as a percentage — their real estate agent in the event that the seller does not cover any or all of the buyer’s agent commission.

These contracts do not need to be signed if a buyer chooses not to work with an agent, if a buyer visits a home for sale on their own, or if a buyer works with an agent who does not use a NAR-affiliated MLS. Some states already required these written buyer agreements. Illinois was not one of them, but many brokers started encourage their agents to use the agreements after the Missouri ruling came down.

In Illinois, there are five primary MLS platforms, and they are all implementing the changes, according to a spokesman for Illinois Realtors, a local NAR chapter. MLS platforms also have the ability to opt out of NAR if they disagree with certain model rules, according to NAR.

Even as the litigation still wound its way through the courts, local real estate companies said it was no longer assumed that the sellers would foot the bill for both the listing agent and the buyer’s agent.

Ellis of Baird & Warner said it remains “highly likely” that buyers will ask sellers during contract negotiations to offer a concession or final cost credit so they can pay their agent. Commission costs have typically been baked into the price of the home, something the DOJ wanted to make clear to buyers with these rule changes, Ellis said.

Veterans with VA-backed mortgages are allowed to pay buyer’s broker fees starting August 10. Prior to the settlement agreements, under VA-backed mortgage policy, veterans purchasing homes were not required to pay a buyer’s agent commission. VA changed its policy in light of NAR’s rule changes because veterans could have been at a disadvantage in the home buying market if they couldn’t offer to pay an agent’s commission, according to VA.

Sellers will retain their ability to offer a buyer’s agent compensation or to choose not to. However, a seller’s agent will no longer be able to list collaborative commission percentages on the MLS. If a seller chooses to cover a buyer’s agent commission, the compensation cannot exceed the amount the buyer agreed to pay their broker in their buyer agency agreement.

Conversations about agent commissions may still occur during the contract negotiation process for buyers and sellers.

Golden of @properties said his company has seen sellers still largely compensate buyers’ brokers.

Erika Villegas, president of the Chicago Association of Realtors, said she hasn’t seen a large number of sellers stop paying commissions to the buyer’s agent.

“What I’m seeing is that we’re having a more transparent conversation with our sellers about all the choices that they have,” Villegas said. “Sellers have always had choices, but I think we’re making that even clearer now.”

The data already shows that the commission percentage has been declining for several years. And lawyers say they expect the rule changes will lead to lower commission fees as agents will be forced to compete for the service.

Since the NAR settlement, the average buyer’s agent commission percentage has declined locally and nationally, according to recent data from Redfin. In Chicago, the average commission was 2.35% for the four weeks ending July 14, 2024, compared to 2.44% for the four weeks ending January 28, 2024. Nationally, buyer’s agent commissions decreased from 2.62% to 2.55%. Redfin said these trends follow years of gradual declines, but buyer agent commissions in dollars have risen this year due to rising home prices.

In the past, real estate agents were typically compensated between 5% and 6% of the purchase price of a house by the seller, an amount that was usually split in half between the buyer’s agent and the seller’s agent. Local real estate agents claim that the commission percentage has always been negotiable. NAR adamantly denies that there have ever been “standard” commissions and also says that its members’ clients have always been able to negotiate commissions.

Golden of @properties said he hasn’t seen commission percentages drop.

It is still too early to know exactly how the policy changes will affect potential home buyers and sellers.

“I just think it’s going to be a bumpy ride for a while,” Baird & Warner’s Ellis said.

But some signs of a changing market are on the way. Ellis’ company is seeing agents leave their roles and expects to see more do the same, she said.

At the end of June 2023, Baird & Warner had 2,226 agents; For the same time this year, the company had 2,161 agents, a loss of about 3% of the company’s workforce, with no noticeable reduction after the settlement announcement in March, Ellis said.

Ellis said it’s hard to tell if agents are leaving because of the Aug. 17 changes. She thinks it is more likely because challenging market conditions. Either way, she thinks it’s a “good thing,” Ellis said.

“The brokers that are going to survive this and thrive are your really high-integrity, very professional, really smart agents, and I think that’s better for everybody,” Ellis said. “The entry bar was simply too low in our industry.”

In its second quarter results, RE/MAX reported a year-over-year drop of 3,581 in its U.S. workforce, down 6.3%, as of June 30.

Villegas of the Chicago Association of Realtors said the trade group has not seen a drop in membership since the settlement announcement but a “re-engagement of members” to make sure they are prepared for the changes.

Redfin has seen its agent count increase by 61 nationally, an increase of roughly 3.7%, between the first and second quarters of this year. Compass saw an even bigger increase in headcount due to recent acquisitions, according to its second-quarter earnings report.

Golden of @properties said his company hasn’t seen any unusual attrition following the settlement agreements, and the company has already navigated some of the market changes in Indiana, as buyer agency agreements became mandatory in that state on July 1. So far, it’s been a “pretty seamless process,” Golden said.

“Every brokerage firm faces the same questions and faces the same changes, and each firm will adapt in its own way,” Golden said.