How the NAR Settlement Affects You

You’ve probably heard that the Nation Association of Realtors (NAR) settled a lawsuit last week that will bring changes to the real estate business.  We’ve been diving into the details of that and trying to figure out how this will affect us and our clients going forward.  The settlement still needs court approval, but the changes are expected to take place in mid-July.

What was NOT included.  If you read the headlines you were likely under the impression that the NAR agreed to lower commissions.  The New York Times headline was “Powerful Realtor Group Agrees to Slash Commissions to Settle Lawsuits.”  The NAR does NOT set commissions.  Since I became an agent 30 years ago, it has been drilled into all of us that there is no standard commission. Agents I’ve met through the years avoid talk of commissions because of fear of getting on the wrong side of anti-trust laws.  Not only are commissions not set by the NAR, they aren’t set informally by agents in a market.  We see agent commissions at every closing and they are all over the place.

The Big Change.  Currently, each listing in the MLS offers compensation to any other agent that brings a buyer that purchases that property.  This buyer agent commission varies (some as low as $1 or more recently zero, but often with much more).  Under the settlement, offering this compensation to buyer agents in the MLS will be forbidden.  Some sellers will continue to offer to pay buyer broker compensation through other means in order to attract more buyers, but buyer agents will have to think more about how they will be paid before they even start working for a buyer.  And more buyers will be paying their own agents when sellers don’t.

Buyer Agency. The settlement also requires that a buyer agency agreement be signed before an agent shows a buyer a house.  Buyer agents will need to have a fee of some type built into these agreements so that buyers either pay them directly or ensure that their buyer client negotiates their commission for the seller to pay.  It will add an extra dimension to negotiating every offer.

Who does this hurt? The big losers in this settlement will be people buying their first house and people using low down payment loans like FHA and VA.  They will not only have to figure out their downpayment and closing costs, but will now have to make sure their agent’s commission is paid.  They will have to agree to those terms before they see houses.  Current VA rules only allow for buyer agent commissions as offered in the MLS.  The VA will need to change that rule or be in a situation where agents won’t work with VA purchasers.  

Who does this help? The winners here are people who can bring plenty of cash when they purchase a home.  Some sellers will here this news and decide not to pay buyer agents.  Savvy buyers with cash will be able to pay their own agent and more than make up for that amount with a lower price on those houses.  They will have less competition, especially in lower price ranges.  

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