In March 2024, the National Association of Realtors (NAR) reached a significant settlement agreement, paying $418 million to resolve a series of lawsuits alleging that its commission policies unfairly inflated the cost of real estate services in the United States. This settlement marks a pivotal moment in real estate, introducing substantial changes to the industry that are slated to take effect in July 2024. These changes are anticipated to reshape the landscape of buying and selling real estate, affecting agents, brokerages, and, most importantly, homebuyers and sellers.
Key Settlement Details and Changes
- Payment Plan: NAR will fulfill the settlement amount through installments, the largest of which, $197 million, is due within 90 days of final settlement approval. Additional payments will follow annually, with the entire settlement expected to be paid over four years .
- Offers of Compensation: One of the most significant changes is the elimination of offers of compensation through the MLS (Multiple Listing Service). This shift necessitates that buyer agents explore alternative methods for compensation, either directly from their clients or through seller concessions or negotiations outside the MLS system.
- Buyer Agency Agreements: Starting in July 2024, buyer agents will be required to use buyer-agency agreements, marking a formal shift towards transparency and upfront discussion about agent compensation with clients.
- MLS Rule Changes: MLS platforms must undergo adjustments within 150 days to comply with the new rules. This includes removing broker compensation fields and prohibiting seller agent offers of compensation to buyer brokers through the MLS.
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Implications for Buyers
Mandatory Buyer-Brokerage Agreements
Starting from July 2024, before showing homes, all buyers will be mandated to sign buyer-brokerage agreements. These agreements are designed to clearly outline the relationship between the buyer and the buyer’s agent, including the details of the agent’s compensation.
The introduction of mandatory buyer-brokerage agreements is expected to ensure that buyers are fully informed and agree to the terms of their agent’s compensation before the home-buying process begins.
Sample Buyer Brokerage Agreement in Florida
Buyers Agent Compensation
- Cooperating Commission – Listing agents and their sellers can, and likely will, continue to offer compensation to buyers agents. In this case, the buyers agent would still be paid by the seller and the buyer would not be responsible for paying their agent.
- Buyer Pays Their Agent – If the seller is not offering to pay the buyers broker, the buyer will be responsible for compensating their agent according to their predetermined buyer-brokerage agreement.
- Submit Offers Requesting Seller Compensate Buyer Agent – Under the new rules, offers submitted by buyers can still include requests for the seller to compensate their agent. This provision allows for flexibility and negotiation directly between the buyer and seller over agent compensation, potentially leading to more tailored and mutually agreeable terms of sale.
Know Your Agents Compensation
The NAR settlement helps buyers understand what their agent will be compensated and allows them to negotiate this fee up front.
Implications For Sellers
In Florida, sellers have always had the option to compensate buyers brokers or not, but it was not permitted to list your home for sale on the MLS without offering compensation to the buyers broker.
Now, sellers will have the choice of whether or not to compensate buyers-brokers and still list on the MLS.
Seller Options
- Compensate Buyers Agents – As a seller you can continue to offer compensation to buyers broker as this is the best way to attract the most interest in your home.
- Do Not Compensate Buyers Agents – You have the option to refuse paying a buyers broker. What may occur is that:
- The offers that you receive may request you to pay their agent anyhow
- The offers received will be reduced by however much the buyer needs to pay their agent
Either way, the buyers broker will need to be paid, and the buyers will look at the total cost of the home including all fees, and adjust their offer accordingly.
Implications for Agents and Brokerages
Obtain a Buyer-Brokerage Agreement
Before showing any homes it will be required that a buyer-brokerage agreement is signed by both parties. This will outline the commission due to the brokerage at closing along with other terms.
Share Cooperating Commissions
Although sharing cooperating commissions on the MLS will be restricted, sharing cooperating commissions is still permitted. You can share cooperating commissions on all your listings in one centralized place on your own website, or you could for example have an auto-response email system that shares all cooperative commissions.
Centralized Location
The settlement strictly prohibits the sharing of commissions between all agents and brokerages in one centralized location.
Submit Offers With Buyer-Brokerage Compensation
If a home does not have a cooperating commission, discuss with your client the option to submit an offer requesting buyers-broker to be compensated and detail the amount of the commission in the offer.
Final Thoughts
This settlement signifies a momentous shift in the real estate industry, promising to make the market more competitive and transparent. The full impact of these changes will become clearer after they go into effect in July 2024, but the anticipation is that they will democratize the real estate process, offering benefits to consumers while challenging professionals to adapt to a new normal.
