Last month, the National Association of Realtors (NAR) agreed to settle lawsuits against the organization, 1.5 million NAR members, and major real estate brokerages throughout the country.

The suits alleged antitrust violations. Under the terms of the settlement agreement, NAR will pay $418 million and implement new rules regarding residential real estate transactions.

The NAR is the largest trade association in the country, and establishes and enforces rules that govern more than 1,400 local associations and their Multiple Listing Services (MLS), including the Santa Barbara Association of Realtors, of which I am a member.

The lawsuit, brought by home sellers in Missouri, alleges that NAR’s practices resulted in reduced competition among brokers resulting in lower quality service and higher prices.

A major complaint is NAR’s requirement that to list a property for sale on the MLS, in Santa Barbara the largest and most reliable database of area homes, the sellers’ agents must offer to share the commission with the buyers’ agents.

This practice results in sellers having to pay the buyers’ agents to negotiate against them.

In Santa Barbara the average buyer’s commission today is roughly $63,000, and in Montecito, $200,000.

Nationally, approximately $100 billion is paid to residential sale commissions.

NAR, which denies any wrongdoing, said that this tied compensation rule will no longer be required nor permitted to be displayed on the MLS.

In addition, buyers’ agents must have a signed representation agreement, specifically identifying compensation, before they can show a buyer property. The “let’s jump in my car and see some homes” days are over.

How harmful has this practice been for Santa Barbara buyers and sellers is difficult to say.

Although it seems strange for sellers to pay for the buyers’ agents ( I can’t think of  a transaction as significant as a home purchase, or in fact anything else, where this occurs), it can be argued that a properly qualified and represented buyer enhances the likelihood of a successful transaction, thereby benefiting sellers.

For buyers, the suit alleges injury because they are also paying the commission in that it is “baked” into the price, and that they don’t get to negotiate the commission with their agents.

Perhaps so, yet what I’ve witnessed during the last 20 years or so of practice here, is that buyers have enjoyed aggressive, competent representation, and they didn’t have to write a check.

And around here those are big checks.

Economists generally believe this settlement will result in lower home prices. Since sellers will not have have to pay double commission, they will reduce the asking price accordingly.

I’m not sure where they live, but here this savings is going into the sellers’ pockets. Home prices are determined far more by supply and demand forces than transaction costs.

Yet the question remains, should commission be no longer a component of the sellers’ asking price, where will the buyer money come from to hire representation?

After the downpayment and closing costs, buyers often don’t have much extra and lenders do not permit commissions to be rolled into mortgage loans.

In the meantime, the long-standing agent compensation rule continues until mid-July, and most of us would be guessing if we said we knew exactly what will come next. On Tuesday, a federal judge granted preliminary approval of the settlement.

I suspect that given the complexity of the California Residential Sales Agreement, and the many critical negotiating points in our ultra high-end transactions, sophisticated buyers will continue to value and engage representation.