The National Association of REALTORS® (NAR) recently reached a settlement agreement that significantly changes the real estate transaction process. This NAR settlement ends litigation claims regarding broker commissions and introduces new rules that will affect how commissions are handled in real estate transactions. This change takes effect in August 2024. Here’s what you need to know about the settlement and its impact on home sellers and buyers.

What is the NAR Settlement?

The NAR settlement addresses claims about broker commissions and aims to provide more transparency and consumer choice in real estate transactions. Under the settlement, new rules will change how commissions are communicated and negotiated.

Key Changes from the Settlement

Decoupling of Commissions:

The offer of buyer agent commission is now separate from the seller and listing agent’s commission. This means that these two aspects will be negotiated independently.

Removal of Commission Fields in MLS Listings:

Starting mid-July 2024, Multiple Listing Services (MLS) will no longer display fields indicating the buyer broker compensation. This change aims to prevent any implicit expectations around commissions.

Written Agreements for Buyer Brokers:

Real estate agents working with buyers will need to have written representation agreements before conducting showings of MLS-listed properties. This ensures buyers are fully informed about the laws of agency, the services they receive, and how the buyer’s agent will be compensated.

Option for Sellers to Offer Concessions:

While sellers can no longer list specific compensation for buyer brokers in the MLS, sellers can offer concessions through the purchase agreement, such as contributing to closing costs which might include broker fees.

Impact on Home Sellers

Increased Transparency and Negotiation:

Sellers now have more flexibility and transparency in handling commissions. They can choose whether to offer concessions and determine how much they will contribute toward the buyer’s agent fees.

Potential Cost Savings:

In theory, sellers may find opportunities to save on transaction costs by negotiating buyer agents’ commissions separately.

Need for Clear Communication:

This change will require sellers to work closely with their listing agents to understand the new rules and how best to position their listings in this new environment.

Impact on Home Buyers

Greater Clarity and Choice:

Buyers are now required to enter into written agreements with their agents prior to viewing homes. This will provide buyers with greater transparency on the services rendered and what they are paying for.

Possible Increased Upfront Costs:

If seller concessions are not offered, buyers might need to pay their agents directly, which may impact the funds they need to bring to closing. Buyers should discuss all financial aspects with their agents early in the process.

Flexibility in Agent Compensation:

Buyers can negotiate their agent’s compensation upfront and explore various ways to cover these costs, including seller concessions or financing options.

What This Means for You

The NAR settlement represents a significant shift in the real estate industry, promoting transparency and consumer choice. By understanding these changes and working closely with your agent, you can successfully navigate the new landscape and make informed decisions in your real estate transactions. The essential first step is to schedule a Buyer Consultation.

What is  Buyer Consultation?

During the consultation, we’ll review the laws of agency, the purchase and sale agreement, the offer process,  the negotiation process, Seller Disclosure Statements, escrow, the home inspection process, broker compensation, closing costs, closing and recording, timelines … in short, the Buyer Consultation gives you a complete overview of the home-buying process, and that knowledge will empower you to make an informed buying decision when the time is right for you.