NAR Settlement Explainer
NAVIGATING KEY REAL ESTATE PRACTICE CHANGES AND WHAT IT MEANS FOR HOME BUYERS & SELLERS
PRESENTED BY: HOLMES REALTY GROUP
The Lawsuit Against NAR
AND WHY KEY PRACTICE CHANGES ARE BEING MADE
In 2019, a group of Missouri home sellers filed a class-action lawsuit against the National Association of Realtors (NAR) The lawsuit alleged that NAR's compensation rules, which required listing agents to advertise buyer's agent compensation on listings, violated antitrust laws and reduced competition which artificially inflated commission prices The sellers claimed that these practices raised costs for home buyers and sellers.
In March 2024, the lawsuit was settled, with the NAR agreeing to pay over $400,000,000 in damages and make industrywide changes such as requiring real estate agents to enter into a written buyer agency agreement and disclose the amount/rate of compensation they will receive The settlement went into effect nationwide on August 17, 2024
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What’s Changing In Residential Real Estate?
The destination is the same but the “route” is different. Meaning, there are a few new practice changes that are being implemented related to the purchase and sale of a home in the United States Specifically:
01.
Written Buyer Agreements
Buyers must enter into a formal written agreement with their agent prior to touring any homes. This agreement will clearly outline the agent’s services and the compensation structure.
02.
Transparent Compensation
The buyer-agent agreement will explicitly state the amount and method of the buyer agent compensation. Practice changes are moving toward all compensation being paid directly by the seller and/or the buyer This is replacing the prior practice of “sharing” or “cooperation” of compensation
03.
Changes In The MLS
Seller offers to compensate buyer agents will no longer be publicly displayed on MLS platforms Sellers can still offer compensation, though it will be handled more privately.
Navigating The New Written Buyer Agreement
KEY POINTS TO CONSIDER
You will sign a written agreement with your agent before touring a home.
Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much
The buyer agreement must include four components concerning compensation:
A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined
Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate) and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).
A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and, A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
Written agreements apply to both in-person and live virtual home tours
You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services
The seller may agree to offer compensation to your agent This practice is permitted but the offer cannot be shared on a Multiple Listing Service (MLS) MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
You can still accept concessions from the seller, such as offers to pay your closing costs.
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How Does This Impact Buyers?
You will receive a detailed explanation of your agent’s services and associated fees at the outset of your working relationship
These fees are not fixed. You have the ability to discuss and potentially adjust the compensation structure with your agent.
Sellers Guide to Offering Buyer Broker Compensation
KEY POINTS TO CONSIDER
You still have the choice of offering compensation to buyer brokers You may consider doing this as a way of marketing your home or making your listing more attractive to buyers.
Your agent must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.
This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment
If you choose to approve an offer of compensation, there are changes to how this can happen.
You as the seller can still make an offer compensation, but your agent cannot include it on a Multiple Listing Service (MLS) MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale
Your agent can advertise your listing via off-MLS platforms such as social media, flyers and websites.
You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs)
How Does This Impact Sellers?
Compensation Flexibility
While you can still offer to contribute towards the buyer’s agent fees, this information will no longer be publicly advertised. Strategic Advantage
Offering compensation for buyer’s agents is still recommended, as it can help attract more potential buyers and increase your property’s visibility
Informed Decision Making
These changes are designed to foster greater transparency and fairness across all transactions. With clearer information available, buyers & sellers can make more informed decisions
How Does A Buyers Agent Get Compensated?
AND WHAT IT MEANS FOR A BUYER
1. Seller Offers Full Compensation
The seller agrees to pay the buyer's agent a commission, typically a percentage of the home's sale price This is a common practice and is still expected to be the most common offering from a seller The buyer's agent is compensated directly from the proceeds of the sale, costing the buyer nothing extra
Example: Seller offers a 3% commission to the buyer's agent If the home sells for $800,000, the buyer's agent receives a 3% commission fee from the seller
2. Seller Offers Partial Compensation
The seller offers to pay a portion of the buyer's agent's commission, but not the agreed upon rate in the written buyer agreement The buyer will need to cover the remaining amount to ensure their agent is fully compensated.
Example: The seller offers a 2% commission to the buyer's agent, while the buyer broker agreement is agreed upon at 3% If the home sells for $800,000, the buyer's agent receives 2% from the seller, and the buyer agrees to pay the remaining 1% to meet the agreed upon commission
3.
Seller Does Not Offer Compensation
The seller does not provide any commission for the buyer's agent In this case, the buyer is responsible for compensating their agent the full amount of what was agreed upon in the buyer broker agreement
Example: The seller offers no commission to the buyer's agent If the agreed upon commission in the buyer broker agreement is 3%, and the home sells for $800,000, the buyer directly pays their agent 3% of the $800,000 purchase price.
IT’S IMPORTANT TO DISCUSS POTENTIAL COMPENSATION ARRANGEMENTS WITH YOUR AGENT UPFRONT TO UNDERSTAND HOW THEY’LL BE PAID IN SUCH SITUATIONS
The 3 Core Agreements
THAT GOVERN A REAL ESTATE TRANSACTION
The
Listing Agreement 01
This is the agreement between the Seller and the Listing Broker
Buyer Representation Agreement 02
This is the agreement between the Buyer and the Buyer Broker
The Purchase Agreement 03
This is the offer and the agreement of terms between the Seller and the Buyer
Understanding The Core Agreements AND WHY IT MATTERS TO YOU AS A BUYER OR SELLER
With new fundamental changes happening in residential real estate, its critical to have a complete understanding of these three agreements as a buyer and/or seller. Understanding the broad mechanics of the real estate transaction will help you appreciate and embrace the value of representation when transacting
Buyer Agreement FAQs
What is a “Written Buyer Agreement?” What does it do?
A written buyer agreement is an agreement between you and your real estate professional outlining the services your real estate professional will provide you, and what they will be paid for those services
Why am I being asked to sign an agreement as a buyer?
Written buyer agreements became a nationwide requirement as a part of the National Association of REALTORS®’ proposed settlement of litigation related to broker commissions. The requirement went into effect on August 17, 2024.
In California, yes Many states have required them for years, while some have not As a result, it is entirely possible you or others you know have not used them in the recent past Regardless, they are now a nationwide requirement for all real estate professionals Are these agreements new?
Are these agreements negotiable?
Yes. You should feel empowered to negotiate any aspect of the agreement with your real estate professional, such as the services you want to receive, the length of the agreement, and the compensation, if any. Compensation between you and your real estate professional is negotiable and not set by law. In the written agreement, the compensation must be clearly defined (e.g., $$$, X flat fee, X percent, X hourly rate) and not open-ended or a range. Only sign an agreement that reflects what you have agreed to with your real estate professional
How do I benefit from these agreements?
These agreements clearly lay out what services you (as a homebuyer) expect your real estate professional to provide, and what your real estate professional will be paid. These agreements make things clear and reduce any potential confusion at the outset of your relationship with your real estate professional.
When do I need to sign an agreement?
You will be asked to enter into a written buyer agreement with your real estate professional before “touring” a home with them, either in-person or virtually. If you are simply visiting an open house on your own or asking a real estate professional about their services, you do not need to sign a written buyer agreement.
Does this mean I have to pay my real estate professional out of pocket?
Not necessarily While you are responsible for paying your real estate professional as outlined by your agreement, you can still request, negotiate for, and receive compensation for your real estate professional from the seller or their agent
Can I change or exit an agreement?
Yes. You and your real estate professional can mutually agree to change your agreement. Agreements may have specific conditions under which they can be exited, so read the text of the agreement and speak with your real estate professional if you would like to change or exit your agreement.
