Understanding the NAR Settlement
The recent settlement involving the National Association of Realtors (NAR) has brought significant changes to the way real estate transactions are conducted, particularly in terms of transparency and compensation. This explanation is intended to break down the key points of the settlement and how they affect both buyers and sellers.
New Requirements for Buyer Representation Agreements
Under the settlement, licensed realtors must now use a buyer representation agreement before showing any home. This agreement must include clear disclosure of the agent’s compensation, specified as a percentage or dollar amount, and cannot be open-ended. The agreement also prohibits agents from receiving any compensation beyond what is agreed upon in the contract (unless a signed addendum is added), and it must state that all broker fees and commissions are fully negotiable, not set by law. These changes aim to provide buyers with more clarity and control over the costs associated with buying a home.
Changes to Cooperative Compensation and MLS Listings
One of the most notable changes is that cooperative compensation, which is the payment a seller offers to a buyer’s agent, can no longer be advertised on Multiple Listing Services (MLS). While sellers can still offer this compensation, it must be marketed through other means, such as social media or directly on an agent’s website. This shift is designed to ensure that buyers and sellers are fully aware of the financial arrangements in a transaction, rather than relying on standard practices that may have previously been taken for granted.
How the Settlement Affects Sellers
For sellers, the settlement means a few key changes in how they can market their property and compensate buyer agents. Sellers retain the option to offer compensation to buyer brokers as a strategy to make their listings more attractive. However, this offer cannot be listed on the MLS and must be disclosed in writing before any payment is made. Additionally, sellers can still offer concessions, such as covering closing costs, which can be noted in the public comments of the MLS listing. These changes require sellers to be more proactive in understanding and negotiating the terms of their real estate transactions.
Implications for Buyers
Buyers are now required to sign a written agreement with their agent before touring homes, ensuring that all terms regarding compensation and services are clearly outlined from the start. This agreement applies to both in-person and virtual tours. Buyers should be aware that if a seller does not offer compensation, they may need to negotiate this as part of their offer, potentially covering the difference themselves at closing. This is why it is required for agents to have a signed agreement up front so that representation is clear and how compensation will work is outlined before any licensed activities begin.
Working Together Under the New Rules
Despite these changes, our commitment to our clients remains the same. Whether you are buying or selling, we will guide you through these new requirements, ensuring you understand how commissions work and helping you navigate negotiations. For sellers, we will continue to advise offering cooperative compensation as a marketing tool to attract buyers. For buyers, we will ensure that all agreements are clear, fair, and in your best interest, even under the new regulations.
Our Perspective on the Settlement
While we appreciate the push for greater transparency, we have mixed feelings about the overall impact of the settlement. On one hand, it’s positive that clients will have a clearer understanding of fees and commissions. On the other hand, we worry that some buyers may struggle to afford representation, leading to potential issues with unrepresented buyers or dual agency situations. Additionally, if sellers are offering less to no compensation to a buyer's agent, we may see more buyers pull out of the market, creating longer market times and lower sales prices. While the real estate industry has long needed more transparency, we believe there might have been better ways to achieve these goals without potentially disrupting the market as significantly.
This settlement marks a historic shift in the real estate industry, and we are here to help you navigate these changes. Whether buying or selling, it’s more important than ever to have a knowledgeable and experienced agent by your side.
