NAR Settlement

Real estate has been in the news lately, due to recent changes put into place by the National Association of Realtors.  These changes are the result of a class-action lawsuit which essentially made the case that home sellers shouldn’t be required to pay compensation to a buyer’s Realtor when selling their home.  As you probably know, in a typical home sale, the Realtor compensation has been paid entirely by the seller, and it has been split (sometimes 50/50 and sometimes differently) between the Realtor representing the seller and the Realtor representing the buyer.  The amount of the buyer’s agent compensation has been posted in the MLS (Multiple Listing Service), typically as a percentage of the price of the home.  So when a Realtor shows a home to a client and prepares an offer on said home, they know how much compensation they will earn if and when that sale consummates. 

Effectively, the new changes that have been put into place by the National Association Realtors are as follows: 

1. While a seller still may choose to offer compensation to the buyer’s Realtor, the amount of this compensation may not be posted in the MLS. 

2. A Realtor must have an agreement signed by a buyer prior to showing that buyer a home or homes.  This agreement will indicate the compensation amount that the Realtor and the buyer have agreed upon to represent that buyer on the purchase of a home.  If the seller of the home that the buyer purchases is offering a buyer’s agent compensation that is equal to or higher than the amount that the buyer and buyer’s agent had previously agreed upon, then the buyer will not have to pay their Realtor out of pocket.  But if the seller is not offering a compensation to a buyer’s agent, or if that compensation amount is less than the buyer and their agent had agreed upon, then the buyer will have to pay the compensation, or a portion of the compensation, out of pocket. 

There has been a lot of speculation about how these changes might affect home buying and selling moving forward.  Will home prices drop?  Will Realtors become obsolete?  Will home buyers start making offers and buying homes without the services of a buyer’s agent?  When considering these questions, I think it is important to remember that real estate commissions have always been negotiable.  It has always been a home seller’s option to offer little or no commission to a buyer’s agent.  But because most people don’t buy a home regularly and don’t understand the intricacies of the process, a typical home buyer wants a professional on their side to look after their best interests, help with negotiations, and make sure they are protected throughout the process.  And, in my experience, home sellers have understood that because the vast majority of buyers are likely to have an agent assisting them, it makes sense to offer a buyer’s agent compensation to incentivize these agents to help sell their home.  When the seller is offering a compensation to the buyer’s agent, this frees the buyer up to make an offer on the home without worrying about holding money back to pay their agent. 

Although we are entering uncharted territory as these changes go in to effect, I personally don’t believe that they are going to dramatically impact home values or even the real estate process in general.  I think it is in the home seller’s best interest to continue to offer a buyer’s agent compensation, and I think that most sellers will understand this.  And should a seller choose not to offer a buyer’s agent compensation, buyers will likely offer less money on that home because they’ll have to pay their agent on top of the price of purchasing the home. 

If you have any questions about these real estate changes, or if you’d like to discuss any other real estate matters, please contact me at (805) 660-9459 or darren@humphreyteam.com.