Making Sense of the NAR Settlement
The $418 million National Association of Realtors (NAR) settlement is making big headlines and causing a lot of confusion among buyers and sellers alike.
The new rules are anticipated to take effect in mid-July.
While we are still waiting to see the full impact on the market, here are some insights to help you make sense of things.
First of all, it’s important to realize that a lot of what may seem like a Big Change is actually more of a paperwork shuffle.
Before this settlement:
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the seller’s agent would include the buyer’s commission rate in the MLS listing
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buyers did not have to sign any contract with their agent
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the buyer’s agent’s commission was “paid for by the seller”
In reality, the seller and their agent would factor the buyer's agent's commission into the listing price. Because of this, it was really more accurate to think of that commission coming from deal money, not the seller's pocket. In this system, sellers felt compelled to offer at least the standard buyer's agent commission for fear that buyer's agents wouldn't show their clients the property otherwise.
Moving forward, buyers must sign a contract with their agent and be responsible for their agent’s commission. We anticipate that many buyers will factor that commission into their offer (for instance, submitting an offer of $1.1M contingent on the seller paying the buyer's agent's 2.5% commission). There is the potential for other creative compensation agreements between buyers and their agents. Time will tell.
So, while we’ll all be learning as we go, the bottom line is that the change will offer more flexibility and transparency.
I anticipate the people with the most to lose in this new landscape will be buyers who choose to forgo representation. It will be tempting to skip the potential expense, but having a savvy buyer’s agent to navigate these new waters is going to be crucial- . More on that next month!
