NAR Settlement - What does it mean for buyers and sellers?

No doubt you have seen the ample media coverage of the recent settlement with the National Association of Realtors, and the resulting industry changes. Most of our clients are wondering: 

What does this mean for me when I'm buying or selling a home? 

There has been a TON of misleading and downright incorrect reporting on this issue. So allow us to bust some myths and break down what it means for buyers and sellers. 

Myth 1 - NAR used to control commission rates. 

This was never the case - commissions are and have always been negotiable. 

Myth 2 - Sellers used to have to pay buyers' agents' commissions, but no longer. 

Sellers were never required to pay buyer reps' commissions. They did so because building the buyer broker commission into the price allowed buyers to essentially finance that commission, thereby maximizing their purchase price. This usually works to the benefit of both parties. 

So what did the lawsuit change?

slightly over-simplified for brevity, but basically….

Change 1 - Agents can no longer promote an offer of a buyer broker commission in the MLS. 

However, if a seller chooses to offer a commission, their agent can promote it on the property website, at open houses, in the disclosure package, etc.

Change 2 - Buyers must now sign an agreement with their agent prior to viewing homes.

In this agreement, the buyer specifies the amount of their agent's fee, which can be paid either by the buyer as an out-of-pocket cost, or negotiated into the contract to be paid by the seller, as has been the norm in the past. 

What's happening in the field?

Since the changes took effect on August 17th, we are not seeing significant shifts in the terms that buyers and sellers are agreeing on. Most buyers still want to build their agent's commission into the purchase price of the home. So most offers that our sellers have received have included a request to pay a buyer broker commission. 

The most important thing to sellers is (typically) their net proceeds at the end of the day. As has always been the case, we help our clients look at all of the terms of any offer holistically, including any credits for closing costs, timelines, offer price, etc. 

As of now, we are seeing most sellers continue to offer a buyer broker commission. Or at a minimum, tell buyers that they welcome offers in which one of the terms is the seller to pay the buyer broker fee.

Why? Because sellers love to pay additional closing costs? Of course not! It's because sellers are trying to attract the most buyers and garner the highest net price at the end of the day. 

Because paying their broker's fees directly will add to a buyer’s out of pocket costs, it may limit the amount of funds available for down payment and closing costs. Buyers may be less motivated to look at properties that do not offer cooperative compensation to cover their costs for buyer agent services. 

This is a new law, and practices may continue to evolve. As they do, we'll always be here to provide insight and expert counsel to our clients as to how to best accomplish their goals.