Buying a home is one of the largest financial transactions most people will ever undertake. Agents who are REALTORS® are a trusted source of advice and stand ready to help you navigate your homebuying journey and make the choices that work best for you. NAR’s recent settlement has led to several changes that benefit homebuyers, and we wanted to clearly lay them out for you.
Here is what the settlement means for homebuyers:
- You will sign a written agreement with your agent before touring a home.
- Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much.
- The buyer agreement must include four components concerning compensation:
- A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined.
- Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate)—and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).
- A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and,
- A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
- Written agreements apply to both in-person and live virtual home tours.
- You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.
- The seller may agree to offer compensation to your agent. This practice is permitted but the offer cannot be shared on a Multiple Listing Service (MLS)— MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
- You can still accept concessions from the seller, such as offers to pay your closing costs.
These practice changes went into effect August 17.
Here is what the settlement doesn’t change:
- Agents who are REALTORS® are here to help you navigate the homebuying process and are ethically obligated to work in your best interest.
- Compensation for your agent remains fully negotiable, and if your agent is a REALTOR®, they must abide by the REALTOR® Code of Ethics and have clear and transparent discussions with you about compensation. When finding an agent to work with, ask questions about compensation and understand what services you are receiving.
- You have choices. Work with your agent to understand the full range of these choices when buying a home, which will help you make the best possible decision for your needs.
More details about these changes and what they mean can be found at facts.realtor.
NAR Commission Settlement Commentary
Jul 29 - With the NAR Commission Settlement imminent, there is widespread uncertainty and confusion across the
industry about how it will all play out.
The uncertainty is exemplified by the decision of the CMLS not to offer best practices advice to its members. The
Council of Multiple Listing Services (CMLS) represents 225 different MLS providers across the country and has
urged its members to have "thoughtful conversations" and "pick your own adventure". This means we are likely to
see different implementations in different geographies. The confusion is also exemplified by the NAR's FAQ
webpage on the settlement where the number of FAQs has risen to more than 100, putting it well into TLDR territory.
Recent surveys have shown that commission rates have varied little across the regions of the USA with buyer's
agents earning between 2.6% and 2.8% historically while listing agents have earned 2.8% to 3.2%. In recent
months these numbers have fallen a little to 2.4% to 2.8% and 2.8% to3.0%. There is a lack of consensus on what
these numbers might look like over the next year.
The impact of the settlement is likely to be much more significant to real estate agents than the housing market
itself, though some effects are certainly possible. Our feeling is that these would tend to reinforce existing trends
rather than change them.
We are at a low level of closing activity with only 70,473 closed listings over the past 12 months across all areas &
types. This is down from 74,060 a year ago and well below the long-term average of 85,101. We are still a long
way above the extreme low point of 48,491 that we witnessed on June 30, 2008, so there is room to fall. The
uncertain legal and procedural situation is not likely to increase volumes and we may instead see the declining
closing rate continue for some time before easing mortgage rates are able to stimulate a recovery.
New home sales may benefit from having their agent commissions clearly communicated and this could continue
to grow their percentage share of sales. Builder margins may also benefit from an increasing number of transactions
where no external agent is involved, saving them from paying any compensation to a buyer's agent or broker and
allowing them to compete harder on gross prices.
The DOJ has stated that "real estate commissions in the USA greatly exceed those in any other developed
economy" and their Antitrust Division seem determined to lower them. They want buyer's agent commissions set
between the buyer and buyer's agent and not determined at all by the seller or the selling agent. It is possible that
the NAR settlement does not go far enough for the Antitrust Division to be satisfied that this objective will be
achieved.
While it is true that real estate commissions are higher in the USA than elsewhere, the duties performed by both
buyer and listing agents are usually more extensive than in most other countries. It seems likely that when the dust
settles, buyers will end up paying lower commissions than those paid in the past on their behalf by the seller, but
buyers will also be getting a lot less advice and support during the buying process. This is not necessarily to their
advantage since a small error in buying can have major financial consequences. These can outweigh any small
difference in commission paid.
Clients tend to pay far more for legal services in the USA than in foreign countries too, but driving down the price
of legal advice will not necessarily improve or even maintain the quality of that advice.
