LATEST Housing.buzz on the NAR Real Estate Seller / Buyer Compensation Settlement

Overview of the News Rules to Sell and Buy a Home are Here

The real estate industry is on the verge of major changes thanks to a lawsuit settlement by the National Association of Realtors (NAR). Effective this week , the new rules impact homebuyers and sellers, and who pays 'compensation' to the buyer's agent (and how much).

• Compensation remains negotiable: Compensation is and will continue to be negotiable between agents and consumers (buyers).

• Written agreements with buyers are required: Buyers must sign a written agreement, such as a residential buyer's representation agreement, before a real estate professional can show them a property, in person or virtually. By clarifying the agent's role and responsibilities, the agreements will give buyers a better understanding of the expertise, services, and value that agents provide. The agreements will also address agent compensation.

• Compensation discussions directly with an agent: Compensation offered to buyer agents will no longer be displayed on the Multiple Listing Service (MLS). Buyers (consumers) will need to discuss compensation directly with their chosen agent.

• Home seller contribution options: To help facilitate a transaction, some sellers might want to contribute toward buyer (consumer) expenses, such as “closing costs” (presuming the lender allows, etc). There is a new field on the MLS about seller contributions to buyers.

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"National Association of Realtors® Reminds Members and Consumers of Real Estate Practice Change Implementation on August 17, 2024"

NEWS EXCERPT: National Association of Realtors website, 08/01/24, The National Association of Realtors® reminds members, real estate professionals, and consumers that on August 17, 2024, the practice changes following NAR's Settlement Agreement that would resolve claims brought on behalf of home sellers related to broker commissions will be implemented across the country...

Under the settlement, the following practice changes will take effect:

1. Offers of compensation will be prohibited on Multiple Listing Services (MLSs)

2. Agents working with a buyer must enter into a written buyer agreement before touring a home.

UPDATE to OUR EALIER TAKE (below): There are several pending legal actions against the real estate industry, the National Association of Realtors (NAR) and others. Most of the pending actions emanated from an original legal action where several recent 'sellers' of homes were discussing their expenses to complete their home sale and one seller was surprised to learn that the amount of commission they paid to sell their home was negotiable, and may have been reduced if their real estate agent had sufficiently explained the options available to the seller.

While others are pending, one large legal case is mostly resolved and the actions 1. and 2. above are about to take effect in most states and regions. There are pauses (Colorado) and other areas that don't align with NAR that may or may not conform to new industry practices.

The real and practical effects of the ruling and outcomes at the Buyer, Seller and Agent levels are just beginning to be revealed. Our guess is the the industry will substantially transform this month and this Fall and for the next 1-2 years. Think pre- and post-Amazon for shopping, or think Internet access via an AOL account for hourly rates vs. unlimited access today across our devices. Many agents are already leaving the industry, or going to part-time status, and buyers and sellers are just about to experience the changes first hand.

“The 6% Commission On Buying Or Selling A Home Is Gone After Realtors Association Agrees To Seismic Settlement”

NEWS EXCERPT: CNN Business, 04/15/24, The 6% commission, a standard in home purchase transactions, is no more. In a sweeping move expected to dramatically reduce the cost of buying and selling a home, the National Association of Realtors announced Friday a settlement with groups of home sellers, agreeing to end landmark antitrust lawsuits by paying $418 million in damages and eliminating rules on commissions.

The NAR, which represents more than 1 million Realtors, also agreed to put in place a set of new rules. One prohibits agents’ compensation from being included on listings placed on local centralized listing portals known as multiple listing services, which critics say led brokers to push more expensive properties on customers. Another ends requirements that brokers subscribe to multiple listing services — many of which are owned by NAR subsidiaries — where homes are given a wide viewing in a local market. Another new rule will require buyers’ brokers to enter into written agreements with their buyers.

OUR TAKE: In many (most?) major metro markets in the U.S. the mirage of 6% commission rates being typical has lived on, and is misinforming consumers. Sure, there are Sellers who 'agree' to a 3% Listing commission (for a suite of pre-marketing services and advice) and a 3% Buyer's Agent commission (for qualifying and guiding a Buyer through home showings, preparing purchase offers, coordinating inspections and contingencies, and more), but its very common for a seller to seek out lower commissions in the 2-2.5% or lower rate. I'm aware of 1% Listing commission rates, and Buyer Agent commissions as low as 1-1.5% (with an outlier example of 0.5%).

Admittedly, with home sale properties are 25-50% higher in recent years -- even outpacing rampant inflation -- so it may only take a 2% commission to mimic the 'earlier' 3% but unfortunately for the Agents, they're enduring the the great collision of that same rampant inflation (in their personal lives as ‘consumers’) as the same time as declining commission rates. Then add the ‘part-time agent’ phenomenon — agents who often are full-time W2 career professionals in a different career field who acquire the relatively-easy-to-obtain real estate sales license to capture commissions on their own personal purchase and/or to offer steep discounts when their relative's buy or sell.

Given the ongoing nationwide structural shortages in housing inventory for sale (especially affordable housing), the NAR-settlement and other pending litigation is unlikely to be better for first-time buyers, or fair housing interests, or dividing families and other groups looking for the lifestyle stability (and persistent presence in school systems) and asset accumulation that can accompany home ownership. The new required industry practices like suppression of ‘buyer agent commission’ could add even more confusion and sense of defeat to buyers at the margin who rely on ‘cash back’ and other tactics to transition to an purchased property.

In our opinion, as is typical for this entire storyline, few assertions and conclusion are as they first appear. As the myriad of other commission-related and real estate broker-related lawsuits proceed, the industry is sure to have even more changes to business practices.