How The NAR Settlement Could Impact Buyers And Sellers
Buying
Over the past month, rumors about the recent NAR settlement have dominated real estate headlines — from CNN to TikTok and beyond. Unfortunately, misinformation out there is running rampant in service of click bait, whether it’s articles around a new era of buying and selling or promises that home prices will dramatically fall. At its core, this lawsuit comes down to transparency, the idea that all parties in a transaction should know up front how agents are being paid for their services and work.
Still not sure how to read between the lines? We’ve got you covered. Today, we’re cutting through the noise and breaking down everything you need to know about the NAR settlement — including what it means for you.
First Things First…Behind The Lawsuit
Typically, sellers pay their listing agent and offer additional compensation to the buyer’s agent. This arrangement acknowledges that buyers often allocate their financial resources toward their downpayment, loan acquisition, and other home purchase expenses. The recent lawsuit, primarily led by homesellers, highlights their lack of awareness regarding their ability to set compensation for buyer agents. This settlement brings clarity nationwide, though in Washington DC, Maryland, and Virginia, we’ve already been operating under this framework for over 30 years.
As it stands in the areas we serve, sellers have the opportunity to determine compensation for both the listing and buyer’s agent. Similarly, under this new nationwide precedent, the listing agent can charge a fee for services and recommend that additional compensation be paid to a buyer’s agent at the seller’s behest. In the event that the seller is not granting this buyer’s agent compensation, the buyer would have to pay the compensation or make up the difference, if any. Again, we have already been doing business this way for years! So for us, it’s just business as usual.
The National Association of Realtors and several other brokerages, including Compass, have already settled this lawsuit, but the court must approve it, too, a process which could take months and bring changes to the existing terms.
As dictated by the current agreement, effective July 2024, NAR-affiliated multiple listing services will no longer publicly display compensation for buyer’s agents. Instead, buyer’s agents must directly contact listing agents to inquire about compensation. Additionally, agents must disclose that compensation is negotiable and obtain signed agreements before showing properties to buyers. Another important point? Listings cannot be sorted based on buyer broker compensation offered, aligning with existing practices in our market.
Looking for more help buying or selling a home in Washington, DC? Read some of our other latest posts right here:
What Changes To Compensation Should I Expect?
It’s still early, but we may encounter more instances where buyers either cover or compensate for differences in service fees. In competitive Virginia markets, sellers have occasionally offered 2% instead of 2.5% to buyer’s agents. Conversely, in slower downtown DC markets, sellers have cooperated up to a 4% buyer compensation to facilitate sales. During the volatile days of the Covid market, some buyers even offered to pay their agents to set their offer apart.
Another potential impact we might see in real time? Unrepresented buyers approaching listing agents to draft offers directly, with the typical listing agent fee in this situation of around 4.5%. However, we don’t recommend this move for buyers, as it raises concerns about transaction protection since the listing agent represents the seller.
What Does The Settlement Mean For Sellers?
Hoping to cash in on rumors of the 6% compensation disappearing entirely? Not so fast. The truth is, this settlement doesn’t necessarily imply a decrease in compensations, but rather a change in the way fees are listed: separately rather than as a combined total. And then there’s the fact that price fluctuations are driven by buyer demand and market dynamics, not compensation structures. The change sellers will see, though, is focused more on how compensation is determined and displayed. In effect, sellers and listing agents will now specify the fee for the listing agent separately before deciding if they want to offer any compensation to the buyer’s broker to encourage buyer representation. This new approach enhances transparency by clearly delineating charges for the listing side and any incentives for buyer representation.
…And For Buyers?
For starters, agents must produce a signed buyer’s agreement before showing a house to any prospective buyers. The other big shift? Moving forward, buyers might have to pay their agent directly for their services — although we anticipate that sellers will continue offering payment to attract the largest pool of buyers and maximize their bottom line.
At the end of the day, though, the most pervasive implication of this lawsuit is the affect it will have on buyer agent and client education efforts. In other words? To more accurately convey their value prop, buyer’s agents will need to invest in guidance around the expertise and advantages they bring to the table. A core issue in our industry is the lack of public understanding about the intricacies of our work. Unlike professions typically rooted in academia, real estate isn’t widely taught unless pursued at an advanced level. Consequently, the public often underestimates the array of tasks agents undertake, such as sales, marketing, compliance, and negotiation on behalf of buyers and sellers. Responsibility for this lies in part with our industry, where the low barrier to entry for obtaining a license only exacerbates the issue. Real estate is more of a learn-as-you-go trade, and market knowledge is directly proportional to hands-on experience. For all the qualified agents out there, transparency needs to extend not only to how we are paid, but also to what we do seven days a week!
More questions on what the NAR settlement could mean for your upcoming search or sale? We’re here for you every step of the way! Get in touch today by email at jsmira@jennsmira.com or call us directly at 202.280.2060.
