The real estate world is abuzz following a significant legal settlement involving the National Association of Realtors® (NAR). This settlement, designed to resolve claims brought by home sellers related to broker commissions, introduces a few changes to the real estate landscape. However, the most critical takeaway for buyers and sellers is that the core practices of real estate transactions remain primarily unchanged!
A home is much more than four walls and a roof, and for most buyers, it’s the most significant purchase they will ever make. It is crucial to remember that a win-win scenario for all parties is always possible. Let’s delve into the details of this settlement and what it means for the industry.
Summary of the Lawsuit and Settlement
In March 2024, NAR reached a settlement agreement to end litigation over broker commissions. This settlement has two primary goals.
- Securing a release of liability for as many NAR members, associations, and the MLS as possible.
- Preserving consumer choice in real estate services and compensation.
The proposed settlement, set to be enacted on August 17, 2024, includes changes to how real estate transactions are conducted, mainly through Multiple Listing Services (MLS). The settlement also provides a mechanism for brokerage entities to obtain releases efficiently, ensuring the continued smooth operation of the real estate market.
Implications for Buyers and Sellers
For home buyers and sellers, the settlement introduces multiple essential considerations:
- Written Agreements: Potential buyers must sign agreements before touring homes, and this agreement will outline the services provided and the compensation terms. These written agreements are required for both in-person and virtual home tours. However, a written agreement is not necessary if you are only speaking to an agent at an open house or asking about their services.
- Transparency in Compensation: The compensation structure for buyer brokers is now more transparent, with clear disclosures required.
- Negotiability: All broker fees and commissions remain negotiable, reaffirming that sellers are not obligated to pay these fees. This has always been negotiable. When listing your property, you may still offer compensation to buyer brokers, but this can not be communicated through or on the MLS site. Understanding these changes helps you navigate the selling process and negotiate the best terms for you.
Why a Seller Would Still Want to Pay a Buyer's Agent Commission
Despite the recent discussions about changes, sellers may still find it advantageous to offer a commission to buyer’s agents. It’s important to remember that sellers have never been required to pay the buyer’s agent commission; it’s all part of the real estate negotiation. Offering a buyer’s agent commission can significantly increase the pool of potential purchasers. Most people rely on the expertise and guidance of their agents to navigate the complexities of purchasing a home. In today’s market, many buyers face financial challenges. Creating a win-win scenario remains possible, as we have always seen with buyers’ and sellers’ agents collaborating. This collaborative approach continues to be beneficial in getting homes to the closing table. (And we know a thing or two about closing tables!)
Written Agreements with Buyers
One of the most notable changes involves how compensation offers for buyer brokers are communicated. Under the new rules, MLS participants are prohibited from using the MLS to communicate these offers. Agents who list properties on an MLS must now enter into written agreements with buyers before touring homes. These agreements must:
- Clear Disclosure of Agent’s Pay: Real estate agents must clearly disclose how much they will be paid and how their payment will be determined.
- Specific Payment Terms: The payment terms should be specific and clear, such as a flat fee or a set percentage, rather than vague or open-ended.
- Limits on Agent Compensation: Agents cannot receive extra payment for their services by what was agreed upon in the contract with the buyer.
- Negotiable Fees: It’s essential to understand that all broker fees and commissions are negotiable; they are not fixed by law. Agreements can be amended if need be.
These points ensure fairness in the real estate process, making it easier for buyers and sellers to understand and agree on the terms. Buyers won’t necessarily have to pay their agents out of pocket. This would allow buyers to ask sellers to pay the buyer’s agent during negotiation. Compensation has always been part of the negotiation; that hasn’t changed! This aims to increase transparency and ensure consumers know the compensation structures involved in their transactions.
Moving Forward
The NAR settlement aims to reaffirm the industry’s fundamentals. Buyers and sellers continue to have choices regarding real estate services, compensation, and the negotiability of broker fees. Requiring written agreements enhances consumer understanding and trust in the real estate process.
As these changes take effect, it will be essential for our real estate professionals to adapt and maintain open communication with their clients and colleagues. By doing so, the industry can navigate this learning curve and continue providing valuable services to consumers. As proud members of many local realtor associations, we commend our Gulf Coast associations for banding together to educate and communicate with their members and the community! The goal is for everyone to be informed and educated. By fostering transparency and cooperation, the real estate industry can continue to serve the needs of buyers and sellers effectively!
We are all in this together to get you guys to the (our) closing table!
Resources for this article and for more detailed information about these changes and what they mean visit NAR‘s official page on the settlement.
Contact Information for our local Realtor Associations:
