What the National Association of Realtor NAR Settlement Means for Your
You’ve probably heard about the significant changes happening in real estate. These changes will affect the way home buying and selling are done. These changes are designed to make clear what REALTORS® do for you during your real estate journey.
What Realtor Settlement?
Paul Sian, Cincinnati – Northern Kentucky realtor – explains it like this, “Recently the National Association of Realtors (NAR) settled a lawsuit by a group of homeowners who claimed NAR forced them to pay inflated commissions when selling their homes. That lawsuit has brought sweeping changes to the way homes are bought and sold across the United States.”
For homebuyers, the NAR settlement means:
• You will sign a written agreement with your agent before looking at any home.
Realtors used to work with home buyers based on a handshake agreement. The buyer had no legal obligation to purchase a home using that particular realtor. Many agents failed to take the time to explain the process. As a consequence, homebuyers were often unaware of the details of a home purchase. After months, or sometimes years, of working with a particular realtor, circumstances would come up where a homebuyer decided to discontinue the working relationship. This approach often led agents to suffer financial losses.
• How does the NAR settlement affect open houses?
Agents will ask buyers attending open houses to sign an agreement stating they understand the agent represents the seller first and foremost. And that anything the agent says is with that intention.
We can no longer answer general questions about the house or neighborhood. Out of caution, Compass is advising us to discuss only the information that would typically be on the open house flyer. Any conversation beyond that could be considered as buyer representation.
Not signing the open house disclosure will limit what the agent can discuss with you. No conversation can include the topic of the listing agent representing you as the buyer. We are morally and ethically bound to consider the needs of the seller first. So if you sign the agreement that indicates you understand that, the conversation may be open to more topics.
• What about asking the listing agent to represent you as the buyer?
Dual agency is still legal in California. You can ask the listing agent to represent you as the buyer. The new documents will clearly state that the agent represents the seller first and foremost. It’s always been that way but now buyers will have to acknowledge their understanding in writing.
Some seller agents may be prepared for this by having a compensation agreement in place with the seller. This agreement outlines the guidelines under which the seller agent can assist any non-represented buyer.
There’s also another option which is for the buyer to represent themselves. Although I don’t recommend it, it’s always been an option.
Agents will give home buyers the disclosures and offer documents they need to write an offer to represent themselves. However, the seller’s agent won’t legally provide any help.
• The buyer representation 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.
The agreement must specify compensation in a clear and objective way, avoiding vague terms. Meaning that it will be expressed in terms of specific fees, percentages or hourly rates. It cannot be vague such as “whatever the amount the seller is offering to the buyer.”
◦ A term that says the agent may not receive compensation above and beyond the amount or rate negotiated in the agreement.
You will come to an agreement with your agent in advance about their compensation. If the seller actually offers more than you and your agent agree to, then those funds will be paid to you. Your agent may not get paid anything over what you both agreed to in advance.
◦ The agreement must include a conspicuous/written statement clarifying that the agent’s and broker’s commissions and fees are fully negotiable and not set by law. It is important to keep in mind there is no pre-determined compensation for agents. You are free to negotiate the amount due to your agent for the work performed.
• 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.
When you attend an open house, the agent will ask you to sign an agreement based on whether you are already committed to working with a realtor. This is to clarify the role that agent has (or doesn’t have) in your purchase. Generally speaking, a realtor at an open house is representing the seller. It’s important to remember any communication had is done on the seller’s behalf and benefit.
• You can still accept concessions from the seller, such as offers to pay your closing costs. The agreement with your agent does not conflict with whatever terms the seller is offering to you.
• You may negotiate with the seller to have them pay all or a portion of your agent’s compensation. As a home buyer, you can request the seller pay your buyer agent’s compensation – even if the seller initially indicates that they will not be paying. That is another term that is open for negotiation in your purchase agreement.
How does a buyer’s agent get paid?
This is where most of the new territory comes into play. In the past, the sellers’ proceeds paid both agents based on the negotiations done by the listing agent. It’s always been a “which came first – the chicken or the egg” type of conversation. The seller pays the agents. But who pays the seller? The buyer.
I imagine that will remain the most common way transactions will be done. However, some sellers may refuse. Then it’s up to the buyer to determine how to pay their realtor. Will the buyer have the cash? Will they finance that amount? There are options.
Home sellers may offer buyer credits for carpet or perhaps a new roof. Those are not unusual. Under the new laws, home sellers may offer “concessions” to a buyer. It’s up to the buyer to decide where to apply those funds.
For home sellers, the NAR settlement means:
• Properties listed for sale in multiple listing services (MLS) will no longer be able to include an offer of compensation to the buyer’s broker.
Multiple listing services will no longer include agent compensation. Any compensation that the seller intends to offer a buyer agent must be negotiated during the offer process outside of the MLS.
Multiple listing services will no longer display any potential payment to the buyer’s agent, as you and your agent will determine the compensation. You will negotiate that compensation on a house-by-house basis. Prior to seeing the property, your realtor will advise you of the compensation, if any, being offered by the seller. Then it’s up to you to decide of you’d still like to see the house.
• However, our MLS does allow sellers to communicate to buyer agents that you are open to making concessions to a buyer.
Sellers generally credit the buyer at closing to cover any costs they are responsible for. Things like closing costs, paying the buyer’s agent, or as a repair credit. They are all acceptable concessions.
• You can also negotiate with the buyer if, as part of their purchase offer, they request that the seller pay all or part of their broker’s compensation. Such a request can be in addition to or in lieu of other requests for concessions.
What remains the same:
REALTORS® help home buyers and sellers navigate the complicated process of buying or selling your home. We hold an ethical and fiduciary obligation to work in your best interests.
You can negotiate your agent’s compensation completely. It’s an important initial step to understand the range of your choices when buying your home.
Real estate is harder than it seems. And now that the National Association of Realtors has settled a $4 million lawsuit with the Department of Justice, it’s gotten more complicated.
It’s more important than ever to hire a local realtor who understands the area, the market, and the intricacies of the NAR settlement.
On the face of it, it may seem that the only thing that has changed is that the compensation for the seller and buyer’s agent are no longer tied together.
The California Association of Realtors has created 48 new forms and updated most of the others, which is not as well known. It’s a bit of a new world.
When you’re thinking of moving, consider reaching out to me. I’d be happy to hear your goals and learn if I might be able to help you move on to your next chapter.
Vicki Moore, Realtor
650-888-9268
vicki.moore@compass.com
DRE 0123453
Compass
42 North Cabrillo Highway
Half Moon Bay, CA 94019
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