After my divorce, I rented a townhouse for a couple of years while I saved money to make a down payment on a new home. Unfortunately, the majority of the money I made selling the marital residence was spent paying the legal fees accumulated during the divorce--something I see commonly in my practice.

It took me two years to save the money for a down payment--and that did not include the Buyers' Agent Commission. Recent changes in legislation concerning buyers' agent fees go into effect soon--significantly impacting those looking to purchase a home post-divorce.

I recently attended a presentation given by Prof. Kelly Murray of Vanderbilt Law School (who also serves as the lead investigator/faculty for the National Family Court Project on Housing and Financial Justice) where she shared great insights on "Derisking the Mortgage," emphasizing the importance of understanding these changes. I wanted to share her insights with you.

The Impact of the NAR Settlement

The National Association of Realtors (NAR) recently reached a significant settlement following the Sitzer-Burnett class action lawsuit, which accused the NAR of antitrust violations and inflating commission rates. The $4.7 billion verdict has led to changes that will take effect from mid-July 2024, fundamentally altering how buyers' agent commissions (BAC) are handled.

Key Changes in Buyers' Agent Commissions

1. Removal from MLS: The settlement mandates the removal of buyers' agent commissions from the Multiple Listing Service (MLS). Previously, these commissions were typically included in the listing, split between the listing agent and the buyers' agent. Going forward, while sellers can still offer BAC, it will no longer be a standard practice reflected on MLS listings. According to Prof. Murray, "Customary real estate agent cooperative compensation (splitting a 5-6% commission between the listing agent and the buyer agent, with the fee deducted from the seller's gross net proceeds) changed under the NAR settlement in the Sitzer-Burnett litigation."

1. Mandatory Buyer Agency Agreements: Buyers will now be required to sign agency agreements detailing the commission arrangements. This agreement can cap the BAC at an ascertainable amount, providing more transparency but also potentially leading to higher out-of-pocket costs for buyers.

1. Out-of-Pocket Payments: If the seller does not cover the BAC, buyers might have to pay these fees themselves. For many divorcing individuals, already dealing with financial strain, this could be a significant burden.

Challenges for Divorcing Home Buyers

As I see often in my practice, divorcing individuals often face unique financial challenges, such as reduced income, lower credit scores, and depleted financial reserves. The new legislation could exacerbate these challenges:

• Financial Strain: Paying the BAC out-of-pocket adds another financial hurdle. For those struggling with down payments and closing costs, this change could make buying a home even more daunting. As Prof. Murray highlights, "Buyers who struggle to secure the mortgage down payment...likely lack the financial resources to pay BAC out of pocket."
• Discrimination Risks: Without a standardized BAC, there's a risk of discrimination. Sellers might offer inconsistent BAC amounts, disadvantaging buyers who cannot afford to pay these fees, potentially violating fair housing laws.
• Inverted Steering: Buyers with limited financial resources might only consider listings that offer sufficient BAC, leading to a form of steering that, while legal, could limit their options.

Strategic Considerations for Divorcing Home Buyers

Given these changes, divorcing home buyers need to be more strategic in their approach:

1. Understanding Agency Agreements: It's crucial to understand the terms of buyer agency agreements and negotiate the best possible terms. Seeking the assistance of a knowledgeable real estate attorney or a financial advisor can be beneficial.

1. Budgeting for BAC: Buyers should factor in the possibility of paying the BAC out-of-pocket. This requires careful budgeting and possibly seeking additional financial resources or assistance.

1. Exploring Alternative Financing Options: Look into mortgage programs that might offer lower down payment requirements or assistance with closing costs. Programs aimed at first-time homebuyers, veterans, or those with lower incomes might provide some relief.

1. Leveraging Professional Advice: Engaging with a Certified Divorce Financial Analyst (CDFA(R)) like myself can help in navigating these complex financial landscapes. They can offer tailored advice to ensure that the home-buying process is as smooth as possible.1

The new legislation concerning buyers' agent fees represents a significant shift in the real estate market, with profound implications for divorcing home buyers. Understanding these changes and strategically planning for them can help mitigate some of the financial strains associated with buying a home post-divorce. By staying informed and leveraging professional advice, divorcing individuals can navigate this new landscape more effectively, ensuring a smoother transition to their next chapter in life.

This material contains the current opinions of Prof. Kelly Murray of Vanderbilt Law School but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

Guardian and its subsidiaries do not endorse or have any direct or indirect responsibility with respect to this activity.

[1] This material was produced by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein.