NAR Settlement, What's the Big Deal?

Economy August 21, 2024

There is much media hype and eye-catching headlines. Has anyone taken the time to explain the National Association of Realtors (NAR) settlement?

Notable changes for the real estate industry

This settlement addresses concerns about how real estate agents are compensated, aiming to create a more transparent and competitive environment. I believe the term "decoupling" is useful here, as it illustrates the separation of responsibilities when it comes to paying the seller’s and buyer’s agents.

Historically, sellers have been responsible for paying both their own agent's fees and those of the buyer’s agent, as highlighted below by the WSJ pictorial. This arrangement often meant that buyers were less aware of the costs associated with their agent’s services.

Buyers

Looking ahead, buyers will now need to sign a representation agreement with their agent before touring any properties. This change ensures that buyers are fully informed about their agent’s role and how they will be compensated. Buyers will either be responsible for paying their agent directly or may include the agent’s fees in their offer, potentially negotiating for the seller to cover this cost. A buyer with lower cash resources may find it particularly important to seek out properties where the seller is agreeable to compensating the buyer’s agent within the purchase price of the home. If the commission is not included in the offer, it will not be financed as part of the mortgage and will need to be paid out of pocket at closing.

Sellers

For sellers, these changes provide greater flexibility, as they are no longer required to automatically cover the buyer’s agent fees. However, sellers can still choose to pay the buyer's agent and may even promote their willingness to offer a specific commission amount, which could make their property more appealing to certain buyers in a competitive market. Sellers should be ready for more detailed negotiations, as buyers may request different arrangements for how commission payments are handled.