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News services, including The New York Times, are spreading misinformation about the recent National Association of Realtors settlement. These news organizations said that the N.A.R. agreed to slash agent commissions — but that is flat-out not true. Watch my embedded video below to understand the details of the settlement and its actual impact on the real estate industry.
Takeaways of the National Association of Realtors settlement
The truth is that N.A.R. settlement comes down to the fact that it decided to separate buyer and seller commissions.
Under certain circumstances, the cost of buyer representation could be shifted to the buyer. And, as we all know, the buyer (who is bringing all of the money to the transaction) is the person who can least afford to pay a commission in the transaction. But it doesn’t mean that buyers don’t need representation.
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A home buy for most families is the most expensive and most important financial decision they will make in their lifetime. Highly skilled realtors will get paid exactly what they’re worth. The market will reward realtors who add significant value to the transaction, Those realtors who add little value will get little compensation or be put out of business altogether. (Which at the end of the day, I don’t think that’s a bad thing.)
Here’s my synopsis of the settlement, which is likely to take effect in mid-July 2024:
- Buyer Representation Agreements will be required for agents showing homes listed on the Multiple Listing Service (MLS).
- Sellers can still offer compensation to the buyers’ agent but it cannot be specified in the MLS. It can be advertised to the public elsewhere.
- Agents must make commission disclosures, including the disclosure that commissions are not set by law and are fully negotiable.
The net effect is that buyers will have to specify in the contract the amount they are willing to pay an agent to represent them.
Sellers may feel that it is important to offer buyer’s agents compensation to incentivize agents to show their properties, maximum exposure, and the highest price possible.
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Although MLSs are prohibited from publishing what a seller is willing to pay toward the buyer agent’s compensation, the settlement allows brokerages and their agents to publish seller-approved compensation offers for their own listings (but not other brokerages’ listings) on their websites, in emails, texts, and other communications.
I do believe that buyer agents will have to demonstrate far more expertise to justify their compensation. This change will drive more buyers to the seller’s agent. That agent has a duty to negotiate for and represent the seller. More dual-agency (one agent representing both seller and buyer) will take place, and more litigation will ensue from this conflict of interest.
