So what's the NAR settlement really mean?

Terri White April 6, 2024

There's a lot of speculative media conjecture about the recent lawsuit (Sitzer/Burnett) and its many copycat suits against some brokerages and the National Association of Realtors (NAR). The court has yet to rule on the offer to compromise, but many pundits are using sensational headlines to draw attention, when the reality, and root of the issue, is more mundane. It's really about transparency. For many years the way buyers agents have been paid is through an agreement with the sellers agent. Sellers would agree to pay the sellers agent a certain negotiated fee or percentage with the seller, which has always been, and will continue to be negotiable. The seller's agent would offer to split that commission (cooperating broker commission) with the buyer's agent who could bring a well-vetted offer to the seller, and close the sale. The amount the seller's agent was offering to the buyer's agent was posted in MLS. 

The offer to compromise before the court includes changing how commissions are paid come July 2024. Offers of cooperating broker commissions can no longer be posted in MLS. Buyers will be required to have independent contractual agreements with their agents that essentially say the buyer will be responsible for paying their agent's commission, if the seller does not. Honestly, I think that's a good thing. Buyer's agents will now have a defined relationship with the buyers they are working with, and buyers will know what their responsibilities are when it comes to working with an agent. It doesn't necessarily mean buyers will be paying their own commissions, as savvy sellers will still offer to pay commissions for the best offers, presented by the most experienced buyer's agents with all of the I's dotted and T's crossed because it reduces their liability, and ensures a smoother faster transaction, and higher return on their investment. Sellers are willing to pay for vetted, well-presented offers because they eliminate most of their cancellation fears, so, it’s likely the landscape won’t change too much. Sellers are not going to reduce their property prices because prices are determined by the market value, not a realtor’s commission. So, in that regard, adding a commission to a buyer's bottom line, will more likely increase the overall price to buy a home, rather than reduce it, as most pundits are claiming. And, if a buyer presents an offer without an agent, sellers agents are certainly not going to reduce their fee, because they will be taking on more liability and doing the work of two agents. And just as a side, that seller's agent will not be explaining anything to the buyer, so it can be a very dangerous situation for buyers.

In the past, commissions were never a part of the transaction because it was only a negotiation between brokers. The seller had already agreed to pay a certain percentage when signing the listing agreement. Commission concessions will now become part of the offer, and negotiated along with the purchase price and terms, with additional documents to confirm who is agreeing to pay what to their respective agents. Buyers will very likely still be asking sellers to pay buyer agent commissions, but now, as part of a closing cost credit.

Since lenders have never considered agent commissions as part of the purchase price, they will have to adapt. This new structure may affect first time homebuyers specifically, since the commission will be a separate line item lenders are not yet including in what they will lend on, so adding commissions to closing costs will affect the bottom line and increase the initial cost to get into the market. Hopefully lenders will be quick to adapt to this new model.

So, what's the next step? Getting you set up to find your new home really hasn't changed much. We add one document now, to outline our respective responsibilities, and we add one more when we present our offer. Give me a call and let's put everything in place. It's actually a good time to act while other buyers are stepping back to figure out what to do, there's less competition and a better chance to get your offer accepted. Time to strike.

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