Understanding the NAR Settlement and Its Impact on Real Estate Transactions
Understanding the NAR Settlement and Its Impact on Real Estate Transactions
If you’re considering selling or buying a home, it’s crucial to understand the upcoming changes due to NAR’s settlement to maximize your potential. Let’s delve into the details.
National Association of Realtors
Background on the NAR Settlement:
The National Association of Realtors (NAR) has reached a tentative agreement on a class action lawsuit involving numerous residential real estate state associations, MLS boards, and brokers. This lawsuit originated from a group of sellers in Missouri.
In mid-March this year, a settlement was reached between all parties, although final court approval, including from the DOJ, is still pending.
What are the major changes
Key Changes and Benefits
The settlement introduces major changes in how sellers and buyers’ real estate agents are compensated:
Compensation Offers on MLS:
The settlement bans compensation offers on an MLS. It requires MLS participants working with buyers to have written agreements between the buyer and the agent.
Modernized Selling Model: Previously, the seller and listing agent would offer cooperative compensation or commission sharing to the buyer’s real estate agent, which was advertised only to the buyer’s agent via the MLS. This information was not available to the buyer on MLS websites. Now, no cooperative compensation can be offered to the buyer’s agent via the MLS. Instead, a seller can offer concessions to a buyer for closing costs, such as a credit to cover their agent’s fee, which must be written into the buyer’s purchase agreement and agreed upon by both parties.
Impact on Residential Real Estate Practices
Here’s how these changes affect real estate transactions in California:
Old Cooperative Compensation Arrangement– Under the old system, when a seller hired a broker to sell their home, they signed a listing agreement that included broker compensation. The seller could decide how much, if any, fee or commission would be paid to the buyer’s agent. This amount was subtracted from the total commission paid to the listing agent’s brokerage and noted in the MLS, visible only to agents.
For example:
If the seller agreed to a 5% commission to sell their home, part of this could be allocated to the buyer’s broker. If 2.5% was agreed upon for the buyer’s agent, this amount was subtracted from the overall commission charged to the seller.
New Arrangements-Under the new arrangement, the seller’s listing agreement only includes compensation for the listing agent’s brokerage. If a buyer wants the seller to pay for their agent’s fee, this will be handled in the buyer’s purchase agreement as a concession, similar to asking the seller to cover some or all of the buyer’s closing costs.
Advantages for Sellers and Buyers
Sellers:
Advantages to the seller
Sellers and buyers now negotiate directly on what, if any, compensation will be paid to the buyer’s agent. This negotiation is part of the purchase contract, similar to other contingencies.
Transparency is enhanced, as both parties are aware of what they are expected to pay their agent upfront.
Buyers:
Advantages to the buyer
Buyers enter into a contract with their agent before viewing properties, specifying the agent’s fee, whether it’s a flat rate, hourly fee, or commission based on the property sale. This ensures complete transparency in the buying process.
Concerns and Considerations
Concerns are buyer using VA & FHA loans
One main concern is how this will impact first-time homebuyers using government-backed loans, such as FHA and VA loans. Details on how these will be handled under the new settlement are still being worked out.
There will be a period of adjustment for realtors to communicate effectively and educate their clients on the new changes.
Summary
NAR settlement offers many changes to the residential real estate landscape.
The NAR settlement brings numerous advantages for both sellers and buyers, from reduced legal liabilities and preserved consumer choices to enhanced transparency and market accessibility.
If you have any questions about how these changes might impact your next real estate transaction, feel free to reach out. I am here to help you navigate the market and achieve your real estate goals.
ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED THROUGH SOURCES DEEMED RELIABLE BUT CANNOT BE GUARANTEED AS TO ITS ACCURACY. SUBJECT MATERIAL MAY HAVE ERRORS, OMISSIONS, CHANGES OR WITHDRAWAL WITHOUT NOTICE. ANY INFORMATION OF SPECIAL INTEREST SHOULD BE OBTAINED
