National Association of Realtors' settlement on home-sale commissions will go into effect July if approved.
I want to start by addressing the "misinformation" involving the landmark settlement that could impact real estate practices and commissions as we know them. There is a lot of uncertainty out there. And there are tons of people who thrive on that, they love to stir the pot and tell you “The Sky Is Falling.”
I know I speak for a lot of real estate professionals when I say that we’re upset with a lot of the misinformation that is getting circulated about the proposed settlement. What these proposed changes will do is clean up a lot of real estate agents who don’t run their business like an actual business or keep up with new rules and regulations. Proving your worth and showing your value as a realtor will be what keeps those true professionals in the field, while others will leave the profession from lack of worth and lack of business.
The National Association of Realtors (NAR), reached a settlement last week that will alter policies regarding broker commissions. The agreement comes due to a series of lawsuits nationwide which claim the policies have allowed for inflated fees and even violated antitrust laws.
As it’s always been a free market, buyers and sellers may choose to hire a real estate professional to represent them, or they may not. No one is forcing anyone to work with a realtor or forcing them into an agreement they aren’t aware of.
NAR, which hasn't admitted any wrongdoing, will pay $418 million over four years to compensate home sellers. Under the terms of the settlement, which is still subject to court approval, the listing databases governed by the NAR – also known as multiple listing services (MLS) – are no longer allowed to offer a commission to a buyers' agent.
An MLS is a database run by a cooperative of real estate agents who can share listings with agents at different brokerages.
Here is the important thing to understand:
Paying a commission is not going away. Just like in any profession, there are fees associated in working a professional, whether an attorney, consultant, financial advisor, etc. The cooperating commission amount, if offered, cannot be advertised on the multiple listing service (MLS), proposed for this July. There will end up being different places where it can be determined how much commission is being offered out to a cooperating buyers' agent. The amounts may vary, and buyers will either have it negotiated along with the price or in some cases pay all or a portion out of pocket.
Real Estate Commission Settlement Will Change How Americans Buy and Sell Homes
The process of asking for and negotiating a buyer’s agent commission is just going to be another addendum. No different than the back-and-forth negotiations on an inspection addendum or financing addendum, the buyer’s agent addendum will be used the same way and become common practice.
Buyers were always paying the commission one way or another through the purchase price. So, ultimately, nothing is really changing in this aspect. It’s just going to be more clear and transparent… And really that’s a good thing!
NAR said in a statement to FOX Business that the group does not set commissions and that they are negotiable.
The rule that has been the subject of litigation requires only that listing brokers communicate an “offer of compensation," the NAR said, noting that "that offer can be any amount, including zero. And other rules throughout the MLS Handbook and NAR policy expressly prohibit MLSs, associations, and brokers from setting or suggesting any such amount that should be included in that field."
Some critics, however, are concerned the agreement is another "hit" to homeownership.
"Homeownership, in my opinion, just got hit again because of this lawsuit," "Mansion Global" host Katrina Campins said on "Mornings with Maria" Friday.
"Now what's going to happen is, basically, buyers are going to go directly to the listing agent and think about all the misrepresentation that's going to occur at that point in time, and then think about all of the kickbacks that are going to be given, all the bonuses. I also think that listing agents are going to actually use buyers against each other to... get an increase in price so that the seller benefits. So, I think this is extremely unfortunate."
Another critic warned the lawsuit marked the "Amazonification" of the U.S. real estate industry.
"This just is not a good look for the industry. And it's not good for realtors because, essentially, real estate agents are the ones who are going to get hurt by this," DFW housing and macroeconomics analyst Amy Nixon said on "Making Money” Thursday.
"The biggest implication of this judgment is it is moving us forward towards what I've always considered to be the 'Amazonification' of U.S. residential housing. We're going to make transaction costs lower, but what that does is make it easier for people to buy at scale. And guess who buys at scale? Not families, investors and institutions."
The NAR settlement has stirred up confusion and frustration, and as while waiting for court approval, the housing market remains a tough industry for buyers and sellers alike.
My personal opinion is that this is a big change for our industry in a very positive way!
At the end of the day the DOJ is trying to build in protection for consumers. Under the law, brokers are required to deliver a copy of the Agency Law pamphlet prior to the consumer signing a brokerage agreement — so, ideally, all consumers have read the laws before signing anything.
And before you allow your pulse rate to go up too quickly, remember to take a deep breath. We have seen disruptions — or things we thought would be disruptions — for decades, and they’ve all kind of fizzled out over time. It ends up being not as life altering or as drastic as we think it will be. I’ll repeat something from earlier here. There will still be buyer agent commissions. Just the mechanics of how you request those commissions are going to change. Going forward commissions will be negotiated in an addendum. 99 out of 100 times it will be paid by the seller at escrow directly to the Brokerage just like it is now.
So, plug back in with your brokerage and with classes. Be sure to familiarize yourself with the fully revamped “Buyer Listing Presentation”. Be on the forefront of these changes. Be connected with your peers. All of us ride this together.
At the end of the day, I fully believe that 2024 is going to be a better year than 2023 and even brighter days lay ahead for 2025 and beyond.
When it comes to how we represent buyers, we’re going to get more formal. We’re going to do the right things. We’re going to formalize the whole process for everyone. Just like in a listing presentation how you tour the home, discuss your marketing plan and your commission fees. You will now have a similar process with buyers. In the end, I think this will benefit both the client and the broker. It’s the right thing to do, and it’s what we should have been doing all along. Now we all just have to get used to it.
2024 is going to be a great year for those of us who “Lean into the change”!
Buyer Broker compensation is now fully negotiable just like it was always meant to be!
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