Introduction: Understanding the Impact of the NAR Settlement on Home Buyers and Sellers
The real estate landscape is set to undergo significant changes with the upcoming implementation of the National Association of Realtors (NAR) settlement on August 17, 2024. This settlement introduces new practices that will influence how buyers and sellers navigate the home buying and selling process moving forward.
In this blog post, I summarize the most pressing questions for sellers and buyers. This will serve as a comprehensive guide to help you understand and navigate the evolving real estate market.
Note: In the real estate industry, agents must be affiliated with a licensed brokerage to legally represent customers in buying or selling property. The term “buyer’s broker” in the information following also encompasses the buyer’s agent, both of whom typically receive a certain percentage of the commission. For simplicity, we will reference the buyer’s broker throughout.
FOR SELLERS
1) Will a seller need to offer a buyer’s broker compensation?
- No. Broker compensation is not set by law and is fully negotiable.
2) Can a seller still offer a buyer’s broker compensation?
- Yes. Sellers are legally allowed to offer compensation to the buyer’s broker. The decision is entirely up to the seller, and there are valid reasons for making such an offer.
3) Could offering compensation to the buyer’s broker increase the appeal of a seller’s home to potential buyers?
- Buyers frequently encounter various expenses throughout the home-buying journey, including homeowner’s insurance, moving expenses, down payments, lender and title company charges, home inspection and appraisal fees, etc. A seller’s home will compete with others, many of which may cover the buyer broker’s compensation. This could enhance their appeal by reducing the buyer’s upfront expenses at closing.
4) Can the buyer’s broker compensation be displayed on the MLS?
- Information regarding compensation or bonuses offered to cooperating brokers must not be displayed anywhere within the MLS. However, if permitted by the local MLS, sellers may choose to offer concessions to the buyer, which can cover expenses such as closing costs or the buyer’s agent’s commission. These concessions can be detailed in designated fields. Any listed concessions must not depend on using or paying a buyer broker.
5) How can a buyer’s broker compensation be communicated to the buyer if the seller offers it?
- When the listing broker or seller offers compensation for the buyer’s broker, the listing agent/seller can share this offer through different marketing avenues such as conversations with the buyer’s agent/broker, social media posts, flyers, signs, or emails. Listing brokers can also display compensation offers on their listings on their corporate websites.
6) How does the NAR Settlement affect the listing broker’s compensation?
- Compensation remains subject to negotiation, is not set by law, and should always be discussed between listing agents and sellers.
7) Could the buyer request the seller to compensate the buyer’s broker if the buyer submits an offer to purchase the seller’s home?
- Yes, that’s a possibility. If there’s no initial offer of compensation with the listing, the buyer may request that the seller include payment to their buyer’s broker as part of their offer for the seller’s home.
8) Do buyer’s brokers enhance the professionalism of the transaction experience for everyone involved?
- Buyer’s brokers can contribute to a more professional transaction experience overall. Offering compensation to the buyer’s broker can ensure that the buyer is represented by a licensed professional who handles their side of the transaction. This includes explaining the home buying process, setting expectations, arranging pre-approvals with lenders, showing homes, negotiating purchases, coordinating inspections, managing title insurance and closing services, and overseeing the myriad details required for a smooth home closing. Unrepresented buyers may face challenges navigating these aspects on their own.
FOR BUYERS
1) Does the buyer have to enter into a Buyer-Broker agreement before seeing any homes with the buyer’s broker?
- Yes, if the buyer’s broker uses and lists properties for sale on a Multiple Listing Service (MLS), you’ll need to sign a written agreement before visiting any type of home together. This ensures transparency regarding the buyer’s broker services offered and their cost. Both in-person and live virtual home tours necessitate written agreements.
3) Does this imply that buyers are not obligated to engage a buyer’s broker to purchase a property?
- Consumers have the choice to decide whether to utilize a real estate professional. Studies have shown that consumers greatly appreciate the services offered by a buyer’s broker.
4) Is the Buyer’s broker compensation non-negotiable?
- The compensation is negotiable and not set by law.
5) Will a seller need to offer a buyer’s broker compensation?
- No. Buyer’s broker compensation is not set by law, and all agent compensation terms are entirely open to negotiation.
6) Can a seller still offer a buyer’s broker compensation?
- Yes. Sellers are legally allowed to offer compensation to the buyer’s broker.
7) Could the buyer request the seller to compensate the buyer’s agent if the buyer submits an offer to purchase the seller’s home?
- Yes, that’s a possibility. If there’s no initial offer of compensation with the listing, the buyer may request that you include payment to their agent as part of their offer for your house. It’s important to consider whether some potential buyers might overlook your home in favor of others that include upfront buyer compensation.
8) Once the buyer-broker agreement is signed, what are the ways the buyer’s broker can be paid for their services?
There are several ways in which a buyer’s broker can receive compensation for their services:
- The seller of the property a buyer is interested in has offered to pay a commission to the buyer’s broker.
- If the seller has not offered to pay a commission to the buyer’s broker, a buyer can include that requirement as part of the offer made on the property.
- If the seller refuses to pay a buyer’s broker commission, the buyer would be responsible for compensating the buyer’s broker directly.
Remember: The amount of the buyer’s compensation is negotiable and not fixed by law. The payment terms are detailed in the buyer-broker representation agreement a buyer signs upon hiring a buyer’s broker.
9) What if the seller offers compensation to the buyer’s broker, but it is less than what was agreed upon in the buyer-broker agreement?
- If the seller offers buyer-broker compensation but it is less than what the buyer has agreed upon in the buyer-broker agreement, the buyer may request the difference in broker compensation as part of their offer. If the seller declines to cover the difference, the buyer would then be responsible for covering this amount.
10) If a listing agent arranges an open house or grants property access solely for the seller to an unrepresented buyer, will the buyer need to have a buyer-broker agreement with the listing agent?
- No.
11) What if the seller offers higher compensation to the buyer’s broker than what was agreed upon in the buyer-broker agreement?
- A buyer’s broker cannot accept compensation from any source that surpasses the amount or rate specified in the agreement with the buyer.
