What Are the New Rules for Buyers and Sellers?

In August 2024, the National Association of Realtors (NAR) announced a significant settlement that promises to alter the dynamics of property transactions. This post explores the new NAR settlement rules, how they've evolved since August and their impact on home buyers and sellers.

Understanding the NAR Settlement

The NAR settlement addresses key concerns within the real estate industry, notably around commission structures and the need for greater transparency. These changes aim to foster a more equitable environment for all participants in the buying and selling process. It’s vital for anyone involved in real estate to be aware of these adjustments to navigate this evolving landscape successfully.

By enhancing clarity in transactions, buyers and sellers can better understand their rights, responsibilities, and potential costs associated with real estate deals.

Changes in Commission Structures

One of the standout changes from the NAR settlement is that sellers are no longer obligated to provide compensation to a buyer's agent in order to list their home on the Multiple Listing Service (MLS).

For instance, before the settlement, a seller may expect to pay anywhere from 5-6% towards commissions to cover the fees of both their agent and that of the buyer's. If the home costs $550,000 and the total commission was 5% (2.5% for the seller and 2.5% for buyer agent), the seller would previously expect to pay $27,500 in commissions.

Under the new rules, sellers are only obligated to pay their own agent - so, 2.5% or $13,750 per the example above.

Impact on Buyers

Effective January 1, 2025, buyer agents are now required to have a signed representation agreement "as soon as practicable" and in no event later than when the buyer submits an offer. These agreements must outline:

• compensation terms

• the scope of services provided

• conditions for when compensation is due

• termination provisions

Often Debated: While the agreement isn't required prior to viewing a home or attending an open house, buyers should do so in order to clearly understand their obligation and their agent's fee structure. By enlisting an agent upfront, buyers get a dedicated professional, focused on their goals and needs, versus just the transactional aspects of buying a home.

Can Buyers Negotiate for the Seller to Cover Buyer Agent Commissions?

A strategic agent will consider all ways to lower a buyer's costs. Depending on how competitive the market is, this includes negotiating with the seller to:

• Cover all or some of the buyer agent's commissions. However, again, it is no longer assumed that the seller will cover this cost.

• Pay for closing costs

• Reduce the price

• Offer seller contributions, such as home warranties, credit for repairs or rent-back (if required)

Impact on Sellers

Sellers now have increased flexibility in deciding whether to compensate buyer agents and the amount to offer buyer agents.

If you, as the seller, decide to compensate the buyer agent, your agent must:

• Conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.

• Provide this disclosure in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.

• NOT advertise or offer the compensation on a Multiple Listing Service (MLS)—MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.

Your agent can still:

• Advertise your listing and offer to cover buyer compensation on off-MLS channels like social media, flyers, websites and other marketing materials.

• Determine with you to offer buyer concessions on an MLS (for example, concessions for buyer closing costs).

Working with knowledgeable agents who comprehend these new rules can be beneficial. Experienced agents can craft marketing strategies that better highlight favorable terms, potentially resulting in quicker sales and improved offers.

The Future of Real Estate Transactions

As these rules come into effect, all parties in the real estate market must adapt. Buyers and sellers alike need to understand the implications of the NAR settlement. Real estate professionals play a crucial role in guiding their clients through this transition.

By ensuring that everyone is well-informed, transactions can become smoother and more efficient. As these changes unfold, the ability of buyers and sellers to adapt will be vital in making the most of the new real estate environment.

Further Questions?

Feel free to contact me at mxavier@kw.com or 415-377-8389.