NAR Settlement: What it Means for Home Buyers and Sellers

With decades of real estate experience, Chris Spina shares his invaluable professional perspective on the NAR Settlement. Read on to truly understand the details and their effects.

The National Association of Realtors (NAR) recently reached a settlement agreement pending court approval in a large lawsuit involving over 500 plaintiffs. As someone who has been in the real estate industry for over 45 years and has sold homes in Florida for 26 years, I would like to address this settlement and share my thoughts on how it will impact both sellers and buyers.

BASIS OF THE NAR LAWSUIT

The bottom line is that the lawsuit alleges that buyers end up paying more for a home because a seller offers a commission to the buyer’s agent, also known as a co-broke.

The lawsuit also alleges that NAR’s requirement for a field on the Multiple Listing System (MLS) for broker compensation was a manipulation of the system, resulting in increased prices. It also states that offers of broker compensation should not be communicated via the MLS.

THE PROPOSED NAR SETTLEMENT

Under the proposed settlement, NAR has agreed to pay $418 million over the course of three years to the plaintiffs, but has acknowledged no guilt.

The main points of the NAR Settlement include

1. NAR is mandated to eliminate the fields on the MLS that offer a co-broke amount to a buyer’s agent. 

2. NAR will require all members of NAR and local associations to execute a Buyer’s Broker Agreement outlining the payment a buyer’s broker will receive from the buyer upon completion of the purchase, unless a seller is willing to pay the buyer’s agent.

3. These two items will become effective in mid-July after the judge finalizes and signs the agreement.

How does the NAR Settlement Affect Home Buyers and Home Sellers?

As someone in the real estate field for many years, I believe these changes will have a definite impact.

Here is my professional take on the likely results of this settlement:

Buyers May Be Hesitant to Sign Agreements

Under the NAR Settlement, home buyers will be required to sign a Buyer’s Broker Agreement prior to looking at homes. Moreover, this agreement will include how the commission and real estate agent fees will be paid.

If the home seller is unwilling to pay the buyer’s agent, then the buyer will be responsible for paying their real estate agent.

Many buyers will push back on signing anything, especially something requiring them to pay to retain the professional services of an agent. If the agreement stipulates that if a seller pays, then they do not, buyers may be more willing to sign.

Yet, regardless of their feelings on the document, if a buyer wants to proceed with the home search, they are required to sign a Buyer’s Agreement, according to the NAR Settlement.

Buyers Will Face a Bigger Barrier to Entry

First-time homebuyers often struggle to gather the funds for the downpayment and basic fees. Moreover homebuyers frequently rely on assistance from the seller for closing costs and pre-paid expenses. Adding another fee on top of the significant costs that homebuyers face will be a barrier to entry for some buyers, especially first-time homebuyers.

Also, because a broker payment cannot be part of a loan package, those buyers are at a disadvantage unless they go it alone without a buyer’s agent. This presents a whole new set of challenges, for those first-time buyers who have never been through a real estate transaction and are unaware of the necessary steps.

Sellers May Still Pay Both Commissions

Sellers will need to decide if they are still willing to pay a cooperating broker a commission to bring a buyer into their home. Their listing agent will need to communicate that to the buyer’s agent.

My gut tells me most sellers will continue with their current course of action. As a result, it is crucial for the buyer’s agent to identify this and inform their client of the potential impact prior to any showings.

Additionally, if the amount the seller is willing to pay is disclosed in the Confidential Remarks of the MLS (unless prohibited by local boards), the buyer’s agent will be aware of the compensation offered. 

Offers May Include the Buyer’s Agent’s Compensation

While the seller may not offer to pay the buyer’s agent’s commission, this could be negotiated on the back end.

The buyer’s offer can include a request that the seller pay the buyer’s agent’s compensation. This formal documentation will ensure there is complete transparency and legal agreement.

Home Prices May Decrease (but probably won’t)

The plaintiffs feel that prices will decrease because sellers are no longer obligated to pay a buyer’s agent. In my humble opinion, this will not happen in reality.

Sellers are unlikely to lower their prices simply because they no longer have to pay a commission. I simply do not see this happening, especially with the low inventory and high demand in most areas.

Agents Will Develop New Strategies

To navigate this new landscape, listing agents will need to strategize with each of their clients to determine the best course of action for them.

Documents Will Be Modified

The current forms used to list a home will also need to be amended by the local boards, as they currently refer to a co-broke amount in the agreement.

Builders Will Still Pay a Finders Fee

Builders will continue to pay a “finders” fee/commission to agents who bring buyers to their developments, i.e., Lennar, DR Horton, and the like.

The Updated Buyer’s Broker Agreement

At this point, individual brokerages are responsible for drafting their own Buyer’s Broker Agreement or Buyer’s Representation Agreement. This will be a contract that the homebuyer will need to sign that lays out the duties and obligations of the agent with a compensation agreement.

For my company’s use, our Buyer’s Broker Agreement will indicate that if the seller pays a commission to me (the buyer’s agent), the buyer will not be responsible for any additional fees and is completely off the hook. It will be straightforward and simple.

However, if the seller does not pay a commission, the buyer will be responsible for a set amount at closing, per the agreement. 

As an aside; This is the first time in my 26 years of representing hundreds of buyers that I will be implementing such an agreement. I have NEVER used a buyer’s brokerage agreement, so this is a first for me.

Final Thoughts

The real estate industry will experience many changes in July as a result of this lawsuit. It remains to be seen how these changes will actually and practically play out. One thing is certain– educating buyers and sellers about these changes will be crucial. 

As a professional, I am committed to providing first-class service to my clients, regardless of any changes. For me, it is important to focus on representing the best interests of my clients.

I will keep my eyes on the twists and turns of the Market so my clients don’t have to. If I can assist you in selling or buying, contact me and I will jump right on it!