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A Realtor's job is to navigate the ins and outs of the real estate process, facilitating the sale and ensuring the client gets the best deal for their needs. How do you know they have your best interests in mind, though? A recent class action settlement by the NAR has resulted in new rules for Realtors that change the system significantly for buyers and sellers alike. Here's what you need to know about the settlement and how it could impact you.
What Is the NAR Settlement?
On March 15, 2024, the National Association of REALTORS® (NAR) entered a groundbreaking legal settlement that substantially changed how people buy and sell their homes. The settlement focused on how buyer and seller agents, such as Realtors, could charge for their services and who ultimately pays their fees.
The National Association of REALTORS® is a trade association of Realtors in the U.S. NAR membership means meeting a certain standard and adhering to a code of ethics regarding real estate dealings. However, multiple class action lawsuits have been against the NAR regarding commissions being used to limit competition and drive up costs.
Standard practice has been for both the buyer's and seller's agents to receive their commissions from the purchase price of a property. This is called cooperative compensation. It meant the seller ultimately paid both agents, even as the buyer negotiated a lower price. It also meant sellers could set higher commission rates for buyer's agents to make the sale more attractive to them, even if the home itself wasn't as pleasing to the buyer.
The matter began with a class-action anti-trust lawsuit, Burnett v. National Association of Realtors et al., filed in Kansas City, MO. It included the NAR, the largest trade group representing Realtors, and several other large brokerages using a Multiple Listing System (MLS) to access home sale listings. The allegation was that NAR et al. were engaging in illegal price-fixing by putting unfair payment requirements on home sellers.
In short, previous MLS rules called for sellers to specify a fee or percentage to be paid to both the seller's and buyer's representatives. This fee would be part of the MLS listing and split 50/50 between the two representatives. The claim was that this put an unfair burden on sellers, forcing them to pay high fees to make their listings attractive to Realtors utilizing MLS, especially those representing buyers. Otherwise, a too-low advertised fee could cause buyer representatives to pass the property by.
In addition, it was seen as fundamentally unfair that sellers should pay a fee to the buyers' advocates, which cut into their profits. This also created conflicts of interest since the buyer agent could benefit from higher sales prices at their client's expense.
The courts ultimately agreed. In a negotiated settlement, NAR had to pay over $400 million in restitution and make substantial changes to how agent fees are handled.
Summarized, those rules are now:
- MLS listings are prohibited from listing agent fees. Instead, agents on both sides now negotiate their fees directly with their clients.
- Sellers will no longer be expected to pay buyer-agent commissions.
- Real estate purchasing agents must enter a written contract with clients concretely specifying fees before the buyer can tour recommended homes. This includes both in-person and online virtual tours.
- Buyer agents are prohibited from steering buyers towards homes based on how much money the agent may make.
- Buyer agents can only take compensation from other sources that are within the agreed fee from the buyer.
How does the Settlement Impact Buyers?
The NAR settlement has fundamentally changed the dynamic between buyers and Realtors, impacting several factors, from compensation to negotiation to buying power in a sale.
On one hand, you may pay marginally more since you are now responsible for your own agents' fees. On the other hand, there's now less risk of you being steered towards overpriced properties because your agent wants a big payout.
How Does the NAR Settlement Change My Buying Experience?
The new rules, which went into effect in August, are meant to increase competition in the real estate market, giving homebuyers better access to homes that align with their needs. The settlement has also changed the way your Realtor is compensated. The selling agent no longer sets the buying agent's commission on the sale. Instead, before showing you any listings from a Multiple Listing Service (a database of homes listed for sale, which can only be accessed by licensed real estate agents), your Realtor must provide a written compensation agreement and how it will be calculated.
The most significant change is the requirement that buyers and agents have a written agreement on the fee structure before touring homes. As with sellers, this could be either a percentage or a straight dollar amount - but it must be an objective specific amount with no 'open-ended' fees.
In addition, you will now have to enter into an agreement with your agent over their fees, which will add an extra complication to the process.
Elements of Required Written Agreements
There are several things that the written agreement must include. First is a clear statement of the agent's compensation, negotiated between the agent and the buyer. It could still be a percentage of the eventual sale price, but it could also be a flat fee or an hourly rate. Whatever you agree on needs to be objective and measurable rather than "Whatever amount the seller offers."
Furthermore, the agreement must state that the Realtor can't get additional compensation elsewhere. The buyer pays for the services agreed on. There are no hidden fees and nothing extra coming from the seller. Finally, it must be clearly stated that all broker fees, commissions, and other compensation are negotiated with the buyer. The Realtor can't claim a specific rate or amount required by law.
How Do I Pay My Buyer's Agent?
Negotiating an hourly rate or flat fee could mean you have to pay your agent out of pocket, making it harder for many people to afford a home. However, while fees must be set up front, you can specify in the agreement that they will be paid once the sale closes. In that case, the Realtor's compensation could be included in your home loan amount.
What Does This Mean for My Buying Power?
The new rules give you more power to find and purchase your desired house. Since you're setting the rate with your Realtor rather than the seller, they can only push a property on you that's up to your standards just to get a higher commission.
How Does the Settlement Impact Sellers?
The shift in Realtor compensation will also significantly affect sellers, not only regarding Realtor fees but also on where and how they list and how they attract buyers.
Overall, the NAR settlement is most beneficial to sellers. The simple fact that you no longer have to pay fees to the buyer's agent will likely increase your overall profits from a home sale by at least a few percentage points.
How Does This Impact Realtor Fees?
Sellers now have more room to negotiate fees or commissions with their agents. In the past, the agents' fees were almost always a percentage of the overall sale. Now, it's possible to negotiate flat fees for their services.
Also, the settlement does not restrict sellers' ability to make other deals and concessions. A seller might voluntarily agree to pay some or all of the buyer's fees to make the purchase happen, but it is no longer expected or enforced.
Does the NAR Settlement Impact Properties for Sale by Owner?
If you sell your home yourself, you're not listing on an MLS. Therefore, you still have the option to offer compensation to buyers' agents to make the property more attractive. This could drive more Realtors to FSBO sales, making it easier to find a buyer. However, it could also make negotiations more complicated. Whereas selling a property yourself has typically been used to avoid agent fees, you may now have to raise your asking price to cover part of their compensation.
Will This Make It Harder to Sell My Home?
The NAR maintains that cooperative compensation is integral to the real estate business and that removing it will hurt buyers and sellers. Their code of ethics states that Realtors must always act in the best interest of their clients, so while offers of compensation could be used to help facilitate a sale, they're prohibited from using it as a means of unloading so-called "undesirable homes" on buyers who wouldn't otherwise be interested.
However, this could still make it more difficult for homes that are more difficult to sell to get attention in the first place. Alternatively, it could mean listing your home on something other than an MLS. This would make it easier to make a deal but also severely limit the number of buyers viewing your home. It could also make negotiations more complex, so it takes longer to close the sale.
Regardless of the NAR settlement, the easiest way to sell your home remains through Haven Homebuyers. No matter what shape your home is in, we'll get you a cash offer quickly and allow you to close when you want - as soon as five days.
Conclusion
The NAR settlement is expected to increase competition in the real estate market for buyers and sellers, creating better agent compensation transparency. We would love to help you through the process of selling your home on your terms, with a no-obligation cash offer and flexible closing date that suits your needs.
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