What is the NAR Settlement?
The National Association of Realtors (NAR) recently settled several lawsuits that will change how real estate transactions occur. The settlement requires NAR-associated realtors to provide further transparency in buyer-broker compensation, significantly benefiting buyers.
Real estate agents must provide a written buyer agreement regarding broker fees before working with a given buyer, such as when scheduling home tours. This written agreement will include a specific and conspicuous disclosure of broker commissions, reminding buyers that commissions are entirely negotiable.
This settlement agreement will also prohibit MLS participants, such as a listing broker, from attempting to sway buyer brokers by including offers of compensation on a listing. This can dissuade real estate professionals from showing houses with lower commission possibilities.
Overview of the NAR Settlement
Background and Legal Context
In May 2024, the National Association of Realtors (NAR) settled class-action lawsuits first filed in Missouri in 2019. These lawsuits alleged that the mandatory NAR policy of having listing brokers place commission rates on Multiple Listing Services (MLS) pages would lead realtors and other buyer representatives to steer their clients away from listings that did not have high enough commissions.
Another lawsuit found that NAR and other large brokerage services illegally forced home sellers to cover buyer costs, such as commissions for buyer representatives.
The preliminary settlement approval process began in April 2024, and a final approval hearing will occur in November 2024. However, it has already led to significant practice changes which everyone involved in real estate must understand.
Key Outcomes of the Settlement
The NAR settlement has forced several shifts for every MLS participant, including buyers and sellers. This includes:
- Any listing agreement cannot include compensation.
- A buyer representative cannot decide which homes to show based on their potential for receiving compensation.
- A realtor working with a buyer will require compensation disclosures before working with them.
- Cooperative compensation is now easier because both the seller and buyer pay part of the compensation.
Key Changes Introduced by the NAR Settlement
The NAR settlement significantly influences real estate laws, as MLS participation is one of the primary ways brokers gain business. The primary changes introduced by the NAR settlement include:
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Eliminating Commission Offers
NAR will augment MLS data feeds to remove any broker compensation fields. Offering any details about commissions will lead to the MLS terminating the listing. This means that realtors are more likely to show properties based on suitability than potential commissions.
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Requirements for Written Buyer Agreements
NAR will now require MLS participants working with buyers to have a signed agreement between a realtor and buyer prior to performing any work together, which will explain the type of compensation the real estate professional will receive, such as a fixed fee commission or percentage.
“Working with” is the term to distinguish MLS participants showing listings or negotiating from any other buyer representative who performs administrative tasks.
This broker agreement must include how much the buyer broker will receive, and they cannot receive more than this. This includes whether they’re asking for a flat fee or a percentage.
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Prohibition on Steering
Through steering, brokers would indirectly establish higher commission rates by refusing to work with prospective sellers who did not offer them enough. This means the broker, not the buyer, determined which types of houses would get the most offers.
With commission offers removed, a cooperating broker is incentivized to show the most appropriate properties instead. It also improves unrepresented buyer access to property ownership, as multiple brokers would previously compete for listings that would get them the highest commissions.
Impact on Buyers and Sellers
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Shift in Commission Payment Responsibilities
Sellers no longer automatically cover commissions in a sales contract, which may mean that buyers will offer lower bids because they have to pay part of the commission. This also requires more negotiation between buyers and sellers to decide who will pay what portion, so sales may take longer as everyone determines their responsibilities in the sales contract.
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Seller Strategies in the New Market
As buyers will now be responsible for more charges, sellers may need to offer buyer concessions, such as paying buyer closing costs, in order to stay competitive. Sellers may also have to accept lower price points than they expected because of these additional costs on buyers.
Navigating the New Real Estate Landscape
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Tips for Buyers
It’s important for buyers to know that they can negotiate MLS participant commissions at any time before signing an agreement. Get familiar with what typical commissions are in your area, and be willing to stay firm on what you can afford.
Additionally, read any written agreement carefully so that you’re not surprised by any hidden costs.
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Tips for Sellers
Now that MLS data does not provide offers of compensation, sellers will need to get creative and anticipate buyer needs, including adjusting their pricing and being willing to offer concessions if necessary. If you are willing to pay the commission for the buyer broker, you can tell your listing broker about this and pursue off-MLS discussions.
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Importance of Written Agreements
With the new requirement for written agreements, buyers need to familiarize themselves with the information provided there, including what their obligations will be for paying a commission if the seller refuses to provide any compensation. You may find yourself on the hook for thousands of dollars if you do not fully understand the requirements.
What This Means for the Mortgage Industry
There are likely to be many changes in the mortgage industry based on this, which include:
- Shifting commission structures may change mortgage affordability as middle-income buyers adjust their budget to pay commissions. Lenders may offer less funding, recognizing the new out-of-pocket expenses. Sellers, too, will recognize they need to lower their expectations. This, in turn, may lower mortgage rates, though determining interest rates is a complicated process based on many other variables than just home sales.
- Buyer behavior may change as buyers seek lower price points, meaning mortgage professionals may need to reassess budgets with their clients so they have the funds necessary to pay commissions.
- Mortgage professionals must become part of the process by educating their clients on their new obligations. They may encourage clients to come to them with broker agreements and offer to assist them with reviewing these contracts. Loan officers can serve as an additional resource for buyers who are confused about these new regulations.
Conclusion
Summary of Key Points
The 2024 NAR settlement has changed how home purchasing works in the United States by taking commission information off MLS data feeds and requiring agreements between buyers and brokers before they work together, which includes how the broker will be paid. It also means there is a more collaborative process in deciding who will pay commissions, as sellers are not automatically responsible for them anymore.
Brokers, buyers, and sellers all must understand their new obligations and communicate with one another to make sure expectations are clear throughout the process. Mortgage professionals can also play a crucial role through educating consumers about their rights and helping them understand what costs they may have to pay throughout the home buying process in addition to a mortgage.
Staying Informed and Proactive
With the NAR changes taking place this August, with final approval on the horizon in November, it is crucial for everyone in the home market to stay up-to-date with what’s happening, particularly if they are intending to buy or sell a home soon.
Our loan officers at F5 Mortgage are happy to discuss these changes with you in further detail and help you navigate the new landscape of home sales.
FAQs on NAR Settlement Changes
What are the key changes introduced by the NAR settlement?
The primary changes are:
- No commission information on the Multiple Listing Service;
- Sellers are not automatically obligated to pay commissions;
- Brokers and buyers must sign an agreement before working together.
How will these changes affect real estate commissions?
Buyer representatives will no longer be able to decide which listings to show based on potential commissions. They must be transparent about what they expect to be paid after the transaction is over.
What do buyers need to know about written agreements?
Written agreements must be signed before working with a broker, and they will outline what the commission will be. There is no standardized agreement, meaning that each one may contain slightly different information. It’s crucial to read these disclosures carefully and remember you are always free to negotiate commissions before signing an agreement.
How should sellers adjust their strategies?
Sellers should consider the new expenses buyers will pay and recognize they may get lower bids as buyers adjust their budgets. They should also consider enticements, such as paying commissions or closing costs, to secure more offers.
What are the implications for the mortgage industry?
With the potential for having to pay their own broker commissions, buyers may have lower budgets to accommodate these expenses, which can be thousands of dollars. Mortgage professionals will also need to become educators on the new rules, especially for those purchasing their second home, who may not be aware of the adjustments.
How can consumers protect themselves in the new real estate market?
Consumers can commit to carefully reading any agreement they sign and remember they are free to negotiate commissions before signing anything. If a broker tries to discourage them from negotiating, they should contact a professional for advice about their legal rights. As brokers may have different agreements, it’s important for a buyer to read each one and not assume that it will contain the same details as any other they have signed.
