NAR Settlement – Real Estate News 2024

{original post 5/2/2024}

Change is Coming in the Real Estate Industry
One of the largest changes in the real estate industry of our lifetime is underway. You may have seen headlines in the media about the recent Sitzer-Burnett case and settlement that the National Association of Realtors has been involved in. Headlines, and even politicians, are saying that commissions are “finally” negotiable. The truth is, commissions have always been negotiable. In fact, it’s made abundantly clear in big, bold writing in the California listing agreement. The hype that commissions are “now” negotiable is simply that: hype. Commissions have always been negotiable. However, there are some significant changes that will be taking place, and we wanted to provide you with an accurate update of what you can expect moving forward.

History of NAR and the Commission Compensation StructureThe National Association of Realtors is the strongest advocate for homeownership in the country. They have been lobbying for years to get low down payment programs from the Federal government, including the FHA 3.5% down loan program. They understand that purchasing a home for the first time can be expensive. First time buyers have to save for a down payment and closing costs, and that alone can be very expensive and take a long time to achieve. For this reason, the compensation structure was set up where the listing agent would receive a commission from the seller, then the listing agent would split their commission with the agent who brings the buyer. This way the buyer wouldn't have to bring additional cash for their agent's commission to the closing table. This was designed to help buyers get into homeownership sooner rather than later. What is now taking place is simply a decoupling of the commissions. Instead of having the seller pay the buyer’s agent commission, the buyer’s commission will now be part of a buyer’s closing costs. The reason for this is to make commissions more transparent and clear for buyers and sellers moving forward.



Two Major Changes
Due to the Department of Justice’s (DOJ) settlement with NAR, some new rules will be coming out to help make things more transparent and clear for buyers and sellers moving forward. Here are the biggest changes that are taking place industry wide:The MLS will no longer be able to show a field that says the seller is offering a buyer’s agent commission. That field is simply going to go away, so sellers will know that they are not required to offer compensation to a buyer’s agent if they do not want to.Agents will not be able to show property without first signing a Buyer Representation Agreement. This protects buyers so they clearly know who their agent is, what their role is, and how the agent will be compensated.NAR and CAR have both been telling agents for years to have buyers sign a Buyer Representation Agreement before showing property. It is an industry best practice, and it has long been a standard we have on our team. The reason for this is because it clearly outlines expectations, obligations, and what an agent does for you and for how much. While the ruling is shifting the costs toward buyers, sellers will still have the ability to contribute concessions to help buyers cover their closing costs. A seller can offer a closing cost credit to the buyer to help reduce the all-in expenses on the purchase. We will begin to see this new practice take effect this summer. For a seller, it will be advantageous to offer a closing cost credit in the sale to assist with a buyer’s closing costs. We are committed to working together with all parties to make each sale a win-win for everyone. 

Why you NEED a buyer’s agent
Let’s say you were in a court of law and you were being prosecuted by an attorney. Would you want your own attorney defending you or would you like to have the other party’s attorney represent you? Of course, you’d want your own representation, right? In real estate it is the same thing. The seller is paying the listing agent to represent them. They have a fiduciary duty first and foremost to the seller. In this situation where the commissions are being decoupled is no different than it was before. You may think that you can save some money on commission if you go through the listing agent, however, what you will find more often than not is that you are exposing yourself to greater risk and liability. Without proper representation, you may be leaving tens of thousands of dollars on the table. Will the listing agent be that motivated to negotiate and save you tens of thousands of dollars on bad inspections and reports, or will they simply try to keep the deal together so they can get a paycheck at the end of it? You need your own representation to ensure that your financial best interests are being looked out for.

Why a Seller Should Offer Compensation to Buyer’s Agents
Though offering a buyer’s agent commission is not required if you are going to sell your property, it will be extremely beneficial to you to offer a closing cost credit to the buyer to get your home sold. Did you know that approximately 27% of all leads that buy a home come through a buyer’s agent? If you offer no compensation to agents working with buyers, you are going to miss out on a large pool of buyers. The most motivated, qualified buyers are already working with an agent. They have a timeline, they are pre-approved, and they are ready to go. If you aren’t cooperating with agents who have a large list of buyers they are working with, then you are missing out on a big percentage of the market.

Empirical studies show that listings that offer a lower buyer’s agent compensation actually sit on the market 12% longer. While you may not be able to offer a buyer’s agent commission directly through the Multiple Listing Service anymore, you can incentivize buyers by offering to grant a closing cost credit toward a buyer’s closing costs. This can help you position your property in front of buyers who already have working relationships with buyers.

Why Unrepresented Buyers Will Be High Risk for Sellers
If you are selling a house through an agent and you have an unrepresented buyer trying to purchase it, here are the risks you run:The buyer may not be informed on the process, standard disclosures, financing conditions, local government requirements, and retrofits. Selling to an unrepresented buyer will be an extremely high risk proposition. If the seller is represented by a broker, but the buyer tries to purchase something totally unrepresented, that is just a disaster waiting to happen. Think about it, the buyer will easily be able to say that they didn’t know something and that the seller or listing broker should have explained it to them in the middle of the transaction. 

Buying a Home Unrepresented
You can buy a house unrepresented, however, is it worth the risk? Think about it. You may have bought a house before, you may have even sold a house before, yet laws and best practices are changing every single quarter. These past experiences may make you feel confident you can navigate a real estate transaction on your own, yet are you prepared to face all of the new mandatory disclosures, government retrofits, regulations, and financing conditions that will come up in the sale? Imagine trying to do taxes on your own every year. Sure, you may be able to do it and save in the short term, yet you could be costing yourself even more money because you aren’t aware of certain changes in the tax code. We have had great experiences with CPAs and not so great experiences. The right CPA can help you save BIG TIME on taxes. Hiring a professional is well worth the investment. 

Why You Want a Great Agent Helping You List and Sell
We recently heard a story about a buyer who purchased a property then hired a pest company to come out and take a look at it. While the inspector was there he said, “Hey, we’ve been to this property before just a few years ago.” The buyer then found out that the seller had a pest report from a few years ago with $3,500 worth of work on it. Dry rot, termite fumigation, fungus removal, standard stuff. When the buyer found out about it they were upset! The seller hid material information from the buyer, so the buyer sued. Guess how much the buyer sued for… the buyer pursued the seller for $880,000 in damages. Yikes! They ended up settling for a smaller number in the six figure range, but still, the cost of not disclosing all information you know can be extremely costly. A great agent would have properly walked you through the disclosure process, found out about any and all previous inspections, reports, bids for work, and helped you prepare that information package for the end buyer.

Other Benefit of Buyer’s Agency in a Competitive Market
Have you ever been in the market looking for a deal and feel like everything is selling way too fast? Have you ever written an offer only to be beat out by multiple other buyers? This is where having a solid buyer’s agent in your corner can help you win.First, a great agent should be good at getting the information you need to write a winning offer. Second, this agent should also have several tools in their tool belt to help make your offer stand out. One of the biggest ways to get the seller to take your offer is by helping them net more money. This obviously comes down to offering a great price to the seller, but it can also come down to helping pay the seller’s closing costs. If a buyer has already agreed to pay their agent a commission, then the seller will not need to cover that cost. This will ultimately result in a higher net number for the seller. Therefore, agents who have a buyer representation and broker compensation agreement already on the front end will be a stronger buyer, which means their offer is more likely to get accepted!

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