By Lorraine Ryall
Associate Broker, CDPE, CSSN, CNE
KOR Properties
There has been a lot of talk and speculation in the media about what the National Association of Realtors (NAR) Settlement is and its impact on real estate. With so
much misinformation and confusion about what it is and how it will impact buyers and sellers, I wanted to clarify some of the key issues.
What is the National Association of Realtors (NAR)?
NAR is a trade association for the real estate industry and is one of the largest trade associations in the country, with over 1.5 million members. NAR has a
professional code of ethics to which its members are required to adhere and the organization works to protect private property rights, promote home ownership,
and lobbies to maintain reasonable credit and other standards at the federal level.
What is the NAR Settlement?
The proposed settlement would have the offer of cooperative compensation to a buyer broker completely removed from the MLS system. There will no longer be a
forward-facing offer of cooperative compensation. Buyer’s brokers will need to separately negotiate their commissions with buyers prior to showing property.
This suit was settled for $418 million and after the attorney’s fees are paid will equate to approximately $10 per seller.
When Will the New Rules go Into Effect?
Currently, the settlement is expected to go into effect mid-July 2024, but nothing is definite as the courts still need to approve the settlement. In the meantime, the
Department of Justice has reopened their investigation, which may postpone the implementation date and bring additional changes to the settlement.
There are Two Main Changes in the Settlement:
Cooperating Broker Compensation Will No Longer Be Shown in the MLS
Sellers will no longer be permitted to list any buyer’s agent commission in the MLS (Multiple Listing Service). Currently, the MLS requires the buyer’s agent
compensation to be posted in the listing. The seller pays the buyer’s agent commission from their proceeds at the time of closing, ensuring a clear process for
all parties. While the buyer broker’s compensation will no longer be in the MLS, seller’s will still be permitted to offer compensation through other channels. Sellers can offer concessions to incentivize buyers. These concessions could be used to buy down the interest rate, cover closing costs, or compensate a buyer’s agent.
Buyers Will Be Required to Sign a Buyer Broker Agreement
Under the proposed settlement, buyers will be required to sign a buyer broker agreement prior to viewing any home. The buyer broker agreement will outline the
terms and responsibilities between the buyer and their representative and will specify the commission to be paid and the length of time the agreement will be in
place. A buyer broker could be entitled to a commission during the entire course of the agreement even if the buyer decided to work with another agent. Under this
agreement, the responsibility for the buyer broker’s compensation will be on the buyer, making it imperative for the buyer to ensure they have it covered by the
seller or have the funds available at closing.
Will Sellers Stop Paying the Buyer’s Agent Commission?
Whether to pay a buyer’s agent commission or not has always been the seller’s decision. The determining factors have always been dictated by the market.
Buyers may also instruct their agents to not show them any properties that are not offering compensation, so not offering a buyer’s agent commission could have a
negative impact on how many buyers view a home and the price and speed at which it sells. At the end of the day, the strength of the market will continue to
drive the compensation structure.
How Will Buyers Pay their Buyer Agents Commission?
Most buyers are not going to have the funds available to pay the buyer’s agent commission themselves. It’s hard enough for them now to save the down payment
and all the closing costs.
Here are a couple of potential choices for buyers to consider:
– Only look at homes where the seller is paying the buyer’s agent commission (outside of the MLS) or offering concessions.
– Have the buyer’s agent negotiate concessions during the offer stage.
– Move forward completely unrepresented or work directly with the listing agent in a dual agency representation. Most listing agents will not want to take on this additional liability without additional compensation, so the buyer will still have a buyer broker fee.
Conclusion
Buyers still need and deserve representation by a trusted buyer’s agent. These lawsuits were submitted when the real estate market was incredibly hot, and we
were in the best seller’s market in decades. The doubling of interest rates has led to a significant decrease in demand, increased days on the market, and a softening of the real estate market. We are currently in a balanced market but, for homes that are less than perfect, it is a buyer’s market. The reality is that sellers need buyers and incentivizing buyers has always been in play. Ultimately, the market will continue to dictate pricing and incentives, but it will just be done in a different way than before.
For more information on this and other real estate topics, please visit my website Homes2SellAZ.com. Please don’t hesitate to contact me if you have any questions or would like help buying or selling a home.
Lorraine Ryall
(602) 571-6799