What the NAR Settlement means to home sellers (and buyers)

NAR was in a lawsuit?

On March 15, 2024, the National Association of REALTORS® (NAR) entered into a nationwide settlement covering the commissions lawsuits brought by sellers in many states across the country. This settlement includes the state and local associations and REALTOR®-owned MLSs, such as the Houston Association of REALTORS® (HAR). The courts still need to approve the settlement, which likely won’t happen until late November.

The lawsuits claim that the NAR and brokerage firms unlawfully conspired to inflate real estate agent commissions. They specifically allege that these entities coordinated to enforce a rule requiring all listing brokers to communicate an offer of compensation according to the cooperative compensation rule, thereby fixing or maximizing agent commissions.

The settlement has sent ripples through the real estate industry, raising questions about how it will affect everyone involved – particularly home sellers and buyers. As your real estate agent, I want to break down what this settlement means and how it could influence your next transaction.

A Brief Overview

The NAR settlement aims to enhance the disclosure and negotiation of real estate commissions. It aims to enhance transparency in presenting commission details to both buyers and sellers. This shift could dramatically alter how real estate transactions unfold, potentially reshaping the roles of all involved.

Traditionally, sellers have been responsible for paying the commission for both their agent and the buyer’s agent. For example, a listing agent might charge a 6% commission to their sellers, then offer half of that 6% to pay the buyer’s agent.

At question was the fact that the plaintiffs in these cases claim that they were never made aware that commissions were negotiable, or that they were under no obligation to pay a commission to the buyer’s agent at all. With the increased transparency mandated by the settlement, sellers might have more negotiating power and flexibility in these arrangements.

What This Means for Home Sellers

Keep in mind that this is a nationwide settlement. Each and every state has their own set of listing documents and contract documents. Some are written more effectively than others. In Texas, our listing agreements have always made it clear that commissions are negotiable – both what the listing agent is charging and what the listing agent is offering in cooperative compensation to buyer’s agents. What was most likely lacking was a specific conversation from the listing agent around what that meant for sellers.

A reader recently posted a question, “I hired an agent to sell my home, do I have to pay the buyer’s broker now?” The answer to that question is No, and by the way, it always has been No. You could have listed your property yourself or you could have declined to offer compensation. There’s a lot of things that you could have done, but you don’t have to.

But there’s a lot of things that you don’t have to do that are just in your best interest.

When you don’t offer a commission to the buyer’s agent, you put yourself at a competitive disadvantage because you’re reducing the pool of potential buyers who can afford your property. Many buyers already face significant costs like moving expenses, lender costs, inspections, appraisals, surveys, closing fees, and down payments. Adding another fee could price them out, limiting your property’s exposure and potentially lowering the final sales price.

It’s also worth noting that this system likely benefited you when you bought the home you’re now selling and could benefit you again in future transactions. The current system has contributed to a strong real estate market, helping sellers achieve desirable prices.

The Effect on Home Buyers

While sellers will almost certainly have more transparent discussions about the commissions they are being charged, ultimately its the home buyers that are going to feel the full financial brunt of the changes mandated by the NAR settlement.

By August 17, 2024, the following changes will go into effect:

Here’s the conversation we’re having with our buyers:

“Some sellers have agreed to pay the Buyer’s Agent compensation in the list price to allow you to finance it. If the seller isn’t offering compensation in the list price, then we can try to negotiate it into the contract. And if that isn’t an option then we’ll take that into consideration before we make the offer.”

The Bigger Picture

Beyond individual transactions, the settlement may signal a broader shift in the real estate industry. Renewed emphasis on transparency and negotiation could lead to new business models for agent compensation. Some agents might offer flat-fee services, while others could move toward more customizable commission structures. Or… nothing could change at all – other than the fact that listing agents are having better conversations with their sellers about commissions.

But no matter what happens, as the industry adapts it’s important for both buyers and sellers to stay informed and work closely with knowledgeable agents who understand these changes and can guide you through them.

Preparing for Your Next Transaction

Whether you’re buying or selling in Katy, Texas, or anywhere else, the NAR settlement is likely to impact your next real estate transaction. By understanding these changes and working with a well-informed agent, you can navigate this new landscape with confidence.

As your local real estate expert, I’m here to help you understand these shifts and how they might affect your home-buying or selling experience. Feel free to reach out if you have any questions or need guidance on your next steps.