The National Association of REALTORS® (NAR) is an organization comprised of over 1.5 million professionals in the real estate industry — the largest trade association in the nation. In mid-March, NAR reached a settlement agreement that resolved claims against the organization. These claims regarded home sellers’ issues with brokers and their commissions, according to NAR’s website. The NAR settlement lawsuit began because a group of home sellers claimed that the NAR along with local brokers and multiple listing services (MLSs) had “conspired to obligate a seller to pay a buyer’s agent’s commission,” according to a CNBC interview with Ryan Serhant, Serhant CEO.
What many sources have concluded, including Serhant, is that this NAR settlement lawsuit has created greater “market transparency.” It has also created “versatility in how [the consumer works with agents].” In actuality, the settlement agreement made a few key changes to how brokers will conduct business when assisting in the buying and selling of homes. These changes should go into effect mid-July 2024. Major changes include the following:
Buyer’s compensation cannot be listed on an MLS
In the current MLS model, a seller can list the compensation for the buyer’s agent on a home. Sellers argue this may cause buyer’s agents to show homes with higher compensation rates before homes with lower compensation rates. This caused homeowners to feel “they would lose buyers if they didn’t offer [higher compensation rates],” according to CNN. While parties can still negotiate compensation rates outside of an MLS, they cannot list these rates on the MLS. This will hopefully cause brokers to steer buyers towards homes that best meet their needs rather than homes that offer them the most compensation.
Written agreements must be made before property tours
In these agreements, buyer’s agents must disclose what type of compensation they will receive for their services. This compensation must have a numerical value, such as a percentage of the listing price or a flat fee. It cannot be open-ended, such as the seller stating that the compensation will be whatever they are willing to offer. Further, a buyer’s agent cannot receive more compensation than the buyer is willing to offer. For example, if the buyer’s agreement states that the buyer is willing to pay 2.5% of the listing price as a commission fee, but the seller offers to pay 3.5% of the listing price, the buyer’s agent cannot collect the extra one percent.
One of the main lawsuit claims is that sellers felt pressured to pay a certain commission to sell their home. However, lawmakers have never set compensation. But now, the settlement agreement states that written agreements with buyers and sellers must conspicuously disclose that laws do not set commissions and commissions are fully negotiable.” (Even though this may be a standard practice for many REALTORS®.)
How these changes might affect you
During a Yahoo Finance interview, Corcoran Group Founder Barbara Corcoran states that the confusion caused by the lawsuit and settlement exceeds the actual changes occurring in the industry. Supply and demand determine the cost, which remains unaffected by this settlement. She also notes that “sellers are greedy” and will not take this opportunity to lower costs for buyers. Instead, they keep any percentage they would have paid to the buyer’s agent for themselves. However, she comments that now is “always the best time to buy” since “you always pay more” when no one else is in the market. She does suggest that sellers may want to consider offering commission to a buyer’s agent since buyer’s agents can get more potential buyers into the home, increasing the sale price.
Remember that while the changes associated with the NAR settlement may not be major, they can help create more competitive pricing for brokers. This forces them to deliver a greater quality of service and results. These changes promote both buyers and sellers making decisions with more information, placing the power back into their hands.
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