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NAR Settlement Changes Industry Practice
The recent news of the Sitzer – Burnett verdict and the National Association of Realtors’ 418 million dollar pending settlement, has prompted agents, attorneys, and lenders within the industry to pause and reflect as new mandated industry changes will soon unroll within the marketplace. While the settlement is pending with NAR and other large real estate conglomerates, concerns regarding the stability of the market and the NAR have been voiced throughout the media. Unfortunately, this highly publicized case has led to insurmountable misinformation from all sides.
Consumers and sellers are now wondering if this lawsuit, and the many copycat cases to follow, will shift market values downward. Meanwhile, real estate agents and their affiliates are wondering if buyer agency will be kicked to the wayside, which, in turn, could cause a ripple effect of real estate market calamity (insert dramatic sigh). These endless speculations combined with the slews of misinformation have further strained our national and regional real estate market which continues to struggle with inventory shortages and interest rate hikes due to inflation.
Aside from all the circulating chatter regarding potential market changes, our agents at Custom Home Realty want to help set the record straight. To all of our consumer friends out there thinking of buying a home, we hear you, and we want to help put your mind at ease despite what you may or may not have heard over social media or the news. To answer some of the many questions presented by consumers, sellers and agents, we are offering the following simplified feedback through our Q&A below. 👇
Will there be changes to the industry? Yes, there will be some new changes within the industry, some of these changes will be mandated and some of these changes will affect you. Change is inevitable and often welcome in our industry as we will always strive to improve our processes. Nevertheless, to change is to adapt, and to adapt is to grow. So, we must press on.
What do these changes look like for buyers and buyer agents? Simply, consumers will be prompted by their buyer agent of choice to sign an exclusive buyer representation agreement. If you agree to the contract set forth between you and said agent, you, the buyer, will be asked to remain loyal to your agent throughout the home-buying process. Upon completion of the transaction, you will be responsible for ensuring your agent’s commission has been paid. As always, your agent will be responsible for providing you with the utmost professionalism and care while negotiating on your behalf, ensuring you are informed about each potential home that interests you and so much more. See our CHR commitment to buyers.
As a buyer, why can’t the seller pay my agent’s commission? While most sellers will likely continue to offer compensation, there may be a few sellers out there who will be unwilling to pay your agent’s commission, thus resulting in a fee incurred by you, the buyer, which will be due at the time of closing, per the buyer representation contract you should have signed upon the start of your home search. While this change may feel burdensome to some buyers, there are a couple of simple solutions that can be implemented within the offer writing process: 1. Have your agent request a closing cost reimbursement. This could indirectly assist in the payment of commissions. 2. Have your agent request compensation through the cooperating compensation agreement addendum that can be submitted along with your offer. This form is intended to prompt negotiations between the seller and the buyer regarding commissions.
What happens if I don’t sign the buyer representation agreement? While this may seem like the obvious alternative to avoid paying your agent’s commission, as the buyer, you will no doubt run the risk of being unrepresented. Gone are the days when buyer agents operated on a handshake agreement. Remember, purchasing a home is not a simple process. We have, and always will, suggest hiring a real estate professional to guide you through purchasing one of life’s largest investments.
I didn’t realize my buyer agent earned an income. Ok, so we hear this one quite a bit. Here’s the thing, buyer agents do not work for free. They take pride in their profession, just like so many of you do as well. A buyer agent will work tirelessly and diligently to seek out the perfect home for you based on your criteria. They write offers and negotiate on your behalf ensuring the terms of your agreement are always in your best interest. They offer expert advice in all respects and maintain communication with all parties including cooperating agents, inspectors, contractors, lenders, and attorneys, from the beginning of your home search to the end of your home sale transaction. In fact, most agents will often remain your trusted go-to liaison during your years of homeownership.
Can I go straight to the listing agent to avoid paying a buyer’s agent? Going directly to the listing agent and bypassing a buyer agent will not save you money. The listing agent does not work for you, and will likely not be earning additional commission to write up an offer on your behalf. That being said, there is no real incentive for you, the buyer, nor is there any incentive for the listing agent or the seller. In addition, the listing agent does not owe you, the buyer, any confidentiality. In fact, a designated listing agent cannot withhold any pertinent information from the seller regarding your status as a buyer as they must abide by their fiduciary duties to their seller client.
As a seller, am I responsible for the listing broker commission? Yes, as a seller, you will be responsible for the commissions owed to the listing brokerage per your Exclusive Right to Sell (ERTS) Contract between you, the seller, and the listing agent with whom had signed said contract. Should you decide to leave out buyer’s agent compensation within your ERTS contract, you may still receive offers asking you to compensate the buyer’s agent through a cooperating compensation addendum.
As a seller, do I have to pay the buyer’s agent commission? No. Buyer agents can either be compensated by the buyers themselves or the sellers. Again, it’s all negotiable. However, we feel confident that most sellers will likely continue to offer buyer agent commissions despite the changes due to the settlement. While commissions will no longer be directly advertised through MLS, agents can still advertise cooperating commissions through other sources, thus attracting a larger pool of buyers. Sellers, it’s important to understand that by eliminating co-broke compensation, you are also eliminating a portion of your buyer pool who have no additional income saved, aside from down payment and closing costs. Now, despite the pros of paying out cooperating commissions, we understand some sellers may choose to bypass this. When this scenario occurs, it will be the responsibility of the buyer to pay their agent at the time of closing, per the agreed-upon amount, which would have been laid out in the buyer representation agreement.
The news said agents are receiving 6% commissions. Is this true? No. Commissions are negotiable and they have been for a very long time. Price fixing falls under the AntiTrust laws, and as such, it is illegal. So, despite what you may have heard from the media, this is not the case. Historically, sellers did front the entirety of the commission fee which was then divided between both the listing brokerage and the co-broke (buyers agent) brokerage. This breakdown would have been established in the Exclusive Right to Sell agreement… as well as the closing disclosure and final settlement statement which both buyers and sellers view and sign before closing day and during closing.
As buyers’ agents, how will the pending changes within MLS affect us? Should the details within the settlement come to fruition, as of mid to late July 2024, cooperating compensation, if any, will no longer be visible through the MLS. Furthermore, buyer commissions will likely become more of a private negotiable conversation between agents and their clients, as well as agent-to-agent dialogue. Fortunately, we anticipate brokerages and their agents will begin to advertise compensation through other platforms; for example, social media, newsletters, print marketing, etc. Therefore, we advise agents to follow the social platforms of cooperating agents in addition to initiating dialogue with the listing agents representing the properties your buyer clients are interested in.
While the pending outcome of this settlement, and the many copycat lawsuits to follow, will likely continue to affect how we operate for some time, we know that change is inevitable in every industry. As agents, we must continue to deliver honest and accurate information regarding changes to the standards and practice of real estate, albeit fluid, as it directly and indirectly affects our businesses internally and externally.
Despite the vibrant array of misinformation, courtesy of every media platform, we can confidently say that the result of implementing these new changes has been positively received by agents and consumers working directly with Custom Home Realty. The Sitzer – Burnett case, perhaps perceived as alarming at first, has only prompted us to have further conversations surrounding agency relationships, which, in turn, has bonded the agent-client relationship in ways we haven’t seen previously. We hope that this Q&A has offered you clarity surrounding the changes within the industry and we look forward to implementing new practices.
Please drop additional questions in the comments below, and we will answer them as they come. As always, thank you for reading!
Sources:
The Truth About the NAR Settlement
