Myth: Commissions are now negotiable for the first time.
FACT: Commissions have always been negotiable. NAR has never guided or set commissions to a standard rate of 6%.
Myth: Buyer Broker Commissions are no longer allowed.
FACT: Buyers and Sellers can negotiate the terms of a Real Estate Agents compensation, as they have always been allowed to do. The new rule simply prohibits offers of buyer broker compensation to appear on the MLS. All commission negotiation will take place outside of the MLS. The new rule is set to go into effect mid-July 2024.
Myth: There will be no place for Buyer’s Agents in the market.
FACT: The Settlement just requires Agents/Brokers who are working with buyers to have a signed agreement with those buyers. This change is also set to go into effect mid-July 2024.
Key Settlement Terms:
- The Settlement resolved claims against NAR, over 1 million NAR members, all state/local/territorial Real Estate Agent associations, all owned MLSs, and all brokerages with an NAR member that had a residential transaction volume of $2 billion or less for 2022.
- The Settlement allows almost all brokerage entities with a residential transaction volume of over $2 Billion to obtain releases if they choose
- NAR will pay the $418 million settlement over a 2 year period.
- MLS membership dues will not change because of the payment
- The Settlement does not mean NAR has been found liable of any wrong doing. The Association continues to deny any wrong doing in connection with the MLS cooperative compensation model rule
- The Settlement is still subject to court approval
What does this mean for Sellers?
- While there is no requirement for a seller to compensate a buyer broker, doing so is the very best way to maximize your financial gain. Offering a buyer broker commission will generate awareness of the property while adding incentive to brokers who work with buyers.
- From a practical standpoint, most lenders will not allow a buyer to finance any brokerage commissions. This means the buyer has to come up with additional cash, in addition to the down payment, closing costs, and prepaid expenses.
- Not offering a commission to a buyer’s broker reduces the buyer’s “buying power” and will eliminate buyers who would otherwise qualify to purchase the home.
- Not offering a buyer broker commission could result in lower offers on the home because the buyer is now facing an additional expense.
- The chances are strong that an offer will include a contingency that the seller pays the buyer broker commission will end up with the same net for the seller while eliminating the buyers excluded in the above points
- Without a stated offer of compensation, buyer brokers are free to demand any level of compensation. The demanded compensation could be higher than what a seller would have offered, resulting in a more expensive transaction.
- Having the entire brokerage community work on the seller’s behalf to find a buyer is the best way to ensure that a seller receives the maximum net proceeds from the transaction.
As a global real estate advisor, my goal is for a successful transaction that includes the cooperation and expertise of a separate real estate professional for buyer and seller. Working with an unrepresented buyer could create extensive issues with negotiations and the transaction process. Working with qualified professionals on both sides of the transactions increases the chance to reach that goal.
What does this mean for Buyers?
- Historically most listings offered compensation to the broker who is brining a buyer.
- Starting in mid-July 2024, sellers will have the option to shift the cost of the buyer broker to the buyer.
- Buyers will be required to review and sign a Buyer Representation Agreement.
- In this agreement buyers commit to paying compensation for professional real estate services.
- Buyers will have the opportunity to offset the buyer broker compensation when a seller offers to pay the buyer broker compensation, through a special stipulation in the offer to purchase, or buy making a lower offer that takes into account the buyer broker commission.
Because the real estate transaction process is extensive and complicated, my goal is to make sure the buyer has the most capable representation to ensure a smooth transaction at the right price. This goal is assured through the Buyer Representation Agreement.
The Bottom Line:
It means that now more than ever you should consider working with a Real Estate Agent who has a legal background that brings honed negotiation skills, a detailed understanding of contracts and risk management, and a keen comprehension of client advocacy and ethical standards. As a buyer or seller, it is prudent to have qualified representation in what is probably the largest personal financial transaction you will make.
Please contact me with any questions or concerns about the Settlement agreement.
I have a team of retired attorneys turned Real Estate Agents that work all around the globe. Let me know if you would like an introduction to one of my partners on your area.
