NAR Settlement Explained: The Truth About the News Dominating the Real Estate Industry Today
NAR Settlement Explained: The Truth About the News Dominating the Real Estate Industry Today
The NAR settlement news has been dominating our industry recently, and has unfortunately been misconstrued pretty badly in the mainstream media, so I am happy to be able to speak to it directly:
The two major takeaways from the proposed NAR settlement (assuming that it is approved by the court in its current form) is that as of July 15th, 2024:
- NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them, including California. Sellers and their agents can (and still will in most cases) offer such compensation as an incentive for agents to bring buyers to the table, much as they do now; the offer just won’t show up in the MLS, though it can be included in marketing materials, on websites, etc. Personally, I don’t anticipate much of a change to commissions/fees to occur outside of the MLS prohibition, as the last thing a seller wants to do is to introduce additional uncertainty into the buyer’s mindset that could result in buyer’s shying away from making offers.
- NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers. We already use these agreements in our practice, as we believe that buyer brokerage agreements help consumers understand exactly what services and value will be provided, and for how much. This is much like having a listing agreement for seller representation, in that it sets forth the scope and substance of representation, including compensation. I would be happy to review a draft agreement with you at your convenience. Perhaps the most impactful part of this requirement is that having a representation agreement in place allows your agent to negotiate with the seller to have that agreed-upon compensation to be paid out of the seller’s proceeds, just like it currently typically is. This will be crucial going forward after July 20th.
| Some things that will NOT change: |
| Compensation will remain negotiable by law, as it always has been, for both buyers and sellers. Buyers are free to pay their agent/broker directly or have their agent’s fee paid by the seller. I predict that the great majority will continue to choose the latter. Buyers and Sellers are under no obligation to use agents to help them in their transaction. Agents may not discriminate as to which homes they show to their clients based on whether or not the seller is offering a cooperating commission. This is known as “steering,” and is prohibited under federal law. |
| Overall, I view these changes as positive for my clients and for the industry, as it forces us to have conversations about finances and responsibilities up front, before we are in contract on a property. |