Understanding the NAR Settlement for Buyers and Sellers
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In March 2024, the National Association of Realtors (NAR) agreed to pay $418 million in damages in a class action settlement while promising to change home sale rules that were deemed unfair to buyers and sellers. The new changes were enacted in August 2024, with buyers, sellers, and Realtors trying to figure out how the new rules will affect them.
If you are preparing to enter the real estate market, it’s important to know what is changing. Some agents are still waiting to see how this settlement pans out while others are immediately making adjustments. Asking the right questions and being informed about the suit can help you navigate the home sale or purchase effectively. Here’s an overview of the NAR settlement for buyers and sellers.
Understanding the NAR Settlement for Buyers
One of the biggest changes that buyers will notice is the introduction of the buyer agreement. Some agents had already embraced this practice before the August 2024 deadline, while others are adopting the contracts now. Here is what the written agreement entails and how it affects compensation.
Written Agreements with Buyers
Before you tour any homes, your real estate agent will likely ask you to sign a buyer agreement. Read every section carefully and know what you are agreeing to before signing. An experienced agent should walk you through what everything means and create space for you to ask questions. You should never feel rushed into signing one of these documents.
Here are a few highlights you can expect from the agreement:
- The agent must disclose specific compensation details, including the rate or amount they will be paid. These details also list which party is paying.
- Compensation must be objective, clear, and agreed upon by both the buyer and agent. You should not agree to a compensation plan you don’t like.
- Agents cannot receive compensation beyond the agreed-upon amount. The agreement should also clearly state that broker fees and commissions are negotiable.
The negotiation aspect is key. You should be able to counter the commission of your agent until both parties reach an agreed-upon rate. You can also interview multiple agents to see if their rates differ.
Changes in Compensation Offers on the MLS
Another key change is the elimination of compensation offers to buyer brokers on the multiple listing service (MLS) where their clients oftentimes can’t see the information. The goal of this change is to avoid steering, or the practice of guiding buyers to or away from specific homes.
For example, if a seller was eager to move quickly, their listing agent could have encouraged them to offer a four percent commission to the buyer’s agent. When agents saw they would get paid more for that house, they could have been more likely to encourage buyers to tour it. Conversely, if a seller only wanted to offer the buyer’s agent one percent, Realtors could steer their buyers away from that property. The new settlement rules are designed to eliminate this practice.
Sellers can still list buyer concessions in the MLS, like closing costs, but they cannot use agent compensation as a bargaining chip. Any commission incentives need to be transparent. However, these incentives can be advertised off the MLS, like on social media posts. As a buyer, you should never feel pressured into seeing a house or turned away from a listing unless there is a good reason.
Negotiability of Commissions
Everything is a negotiation in real estate, including commissions. As a buyer, you can offer a counter commission rate to potential agents if you feel like a different price than the one they want is fair. The Realtor will either accept your rate, counter with another option, or walk away from the deal.
Consider what is a fair rate based on the services your real estate agent will provide, while also learning about the rates of other buyer’s agents in your area. This can give you a fair compensation range and make you more informed when negotiating.
Understanding the NAR Settlement for Sellers
A lot of the focus of this proposed settlement has been on the buyers and buyer’s agents; however, this suit will affect sellers as well. Here is what the agreement means for you and any listing agents you work with.
Compensation for Buyer Brokers
Sellers are also supposed to have transparency and negotiating power in what they pay. They will reach a commission agreement with their listing brokers and determine if they want to offer compensation to the buyer’s agent as well. Covering the cost of the buyer’s commission can make the listing more attractive, just as long as the buyer’s agent isn’t steering them toward the property.
This is one of the more contentious parts of the lawsuit. Sellers are eager to no longer pay buyer’s agent commissions while some buyers worry about affording the commission costs. It remains to be seen whether there will be noticeable industry changes or whether most sellers will continue to cover both commission costs in the future.
If a seller agrees to pay the buyer’s agent, they must state that plan clearly in the listing agreement. The seller needs to approve the action in writing and must agree to a compensation rate upfront. This process is designed to prevent sellers from paying more than they expect in agent fees.
Off-MLS Listings and Advertising
This settlement also provides more flexibility for marketing and advertising. Sellers can advertise their property listings outside of MLS platforms, including social media, flyers, and other websites. They can clearly state what the buyer’s agents will be compensated as long as this information is not included on the MLS. Home sellers can still offer buyer concessions – like offering to pay closing costs – in the MLS.
Negotiable Agent Fees
In the same way that home buyers can negotiate their rates with their agents, sellers can negotiate commissions for their Realtors, along with anything they want to pay to the buyer’s agents. Negotiation has been standard in the real estate industry for centuries, and this will continue.
As a home seller, you should always feel comfortable having open conversations with your real estate agents. These rule changes are designed to help sellers ask questions and increase transparency about the entire process.
How These Changes Affect Real Estate Transactions
When the NAR reached its settlement agreement and this news became public, home buyers and sellers worried the major changes would significantly disrupt the industry. Even many real estate agents were worried about their futures. However, as the new rules go into effect, all parties are seeing positive changes in the real estate industry. The goal is to make the commission rates easier for people to understand so they can navigate the real estate process with confidence.
There is Greater Transparency for Buyers and Sellers
Both home sellers and buyers should have a better understanding of how their agents get paid and what their compensation rates are through these changes. Buyers will not start the purchase process without knowing what they would potentially pay their agents. Sellers will not list their homes without deciding whether or not they want to pay the buyer’s agent. There is increased transparency and choice for the average person who hires a real estate professional.
While all of these agreements between NAR members and other Realtors will be in writing, they can change throughout the buying or selling process. For example, the seller might agree to cover their buyer’s half of the commission fees as part of the negotiation process. As long as all parties are in agreement – and have the terms in writing – there is room for flexibility through this lawsuit.
Importance of Negotiation
This settlement emphasizes the idea that commissions are negotiable and not set by law of the National Association of Realtors. Some sellers believed they were obligated to pay a six percent commission each time, fully covering the buyer’s agent fees. However, this new rule puts negotiation at the forefront of every real estate agreement. Offering compensation is a sales strategy, not a requirement.
This settlement doesn’t mean that Realtors no longer get paid. They can still receive fair pay for their work and can walk away from any client who doesn’t want to pay them. This prevents buyers and sellers from low-balling Realtors to save money.
Understanding Why Compensation Transparency is a Big Deal
Compensation transparency and negotiation is important because so much money exchanges hands during a real estate transaction. If a buyer or seller doesn’t feel like they have a choice in the purchase process, they may overpay. This was the concern in the settlement – the NAR was creating a set of expectations and a monopoly on what real estate commissions should be.
For example, the median sale price for a house in Q2 2024 was $412,300. If a seller pays the full 6% commission, then $24,738 is paid to the real estate agents. If a seller and listing agent agree to a 5% commission through an open discussion and rate negotiation, with the seller agreeing to give 2.5 percent to the buyer’s agent, they will save $4,123 on the home sale. Thousands of dollars are on the line with every real estate discussion, even when it comes to paying the agents.
The local real estate market will determine the rates that sellers can offer and the commissions that agents expect. Commissions might be more competitive in some markets, affecting these negotiations. The new guidelines make these discussions more open and flexible.
How to Deal With Real Estate Transactions Post-Settlement
This settlement is a significant change in the industry, and some agents might be slower to adapt to the new guidelines than others. Here are a few best practices you can follow to ensure any real estate professional you work with keeps up with the updated rules and regulations.
Buyers: Know What You Are Agreeing To
Research is an important part of the home-buying process, whether you are deciding how much house you can afford or exploring different neighborhoods in your area. An important new research step involves reading through any agreements your Realtor wants you to sign, especially before you start touring homes. Make sure you understand what each section means and know that you can counter most suggested compensation requests.
Always ask your Realtor what services they will provide for their fees. You should know exactly what you are paying for and how much it will cost. If a Realtor is vague in their answers or won’t discuss their processes with you, it’s time to find a different agent.
Sellers: Evaluate Your Offers of Compensation
Moving forward, sellers can also have open discussions about compensation. The traditional method of paying a six percent commission on the sale might not remain in place. In the coming years, it may be more common for sellers to pay flat fees or even hourly rates on home sales.
Before you agree to list your home, know how much you are paying your Realtor and if you will offer compensation to the buyer’s broker. Do not agree to move forward without clear knowledge of what you are paying and these terms in writing. You should also be aware of non-MLS marketing opportunities that could showcase your home and compensation plans to others.
You don’t have to agree to everything your Realtor suggests. These new guidelines can give you the strength to speak up, ask questions, and make counter-offers as you see fit.
Work With a Real Estate Agent You Trust
The goal of this new agreement is to empower buyers and sellers to control the offers of compensation to their agents. This is no different than comparing prices for home services or products you are interested in buying. You can decide what you feel comfortable paying and see if that aligns with what local Realtors are willing to accept.
You should never feel pressured to work with a Realtor to take actions you aren’t comfortable with. Buying or selling a home is one of the biggest financial decisions you can make, and unnecessary pressure can cause you to lose money. Respected real estate professionals should embrace these changes because they know they will empower their clients.
Now that you have a strong grasp of how the NAR changes will affect real estate commissions, take the first steps to buy or sell your home. Find Realtors to interview through FastExpert and ask questions about commissions and pay rates. Work with a real estate agent you can trust who is excited to share information with you, not hide it. Try FastExpert today and have a positive real estate experience.
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