NAR Settlement: Facts, Misinformation, & Next Steps
, Mar 18, 2024
### Industry Newsletter Sent on March 18, 2024###
I hope you’re doing well! My family and I were wrapping up a great spring break when my inbox exploded on Friday. First, it was news alerts with subjects like NAR Settlement Rocks the Industry. Next, emails and text messages from concerned agents flooded in.
The gist of the concern is:
What’s real, what’s not, and what do we do next?
It’s important to separate certainties and uncertain speculation presented as facts (misinformation). We’re still early in understanding what happens next, so there relatively few pertinent facts:
- This settles the dispute for most of the industry. Some larger brokerages still need to settle, but most agents and brokerages will be able to move past these lawsuits and go back to work.
- Buyer’s rep agreements are now standard. These have been a best practice for some time and the settlement dictates that all agents now use them when working with buyers.
- Buyer’s agent commissions can no longer be advertised on the MLS. However, contribution to buyer’s closing costs can still be listed on the MLS and buyer’s agent commissions can be negotiated elsewhere.
Not surprisingly, there is a lot of misinformation and uncertain speculation that includes:
- Buyer’s agents are out of a job. This couldn’t be further from the truth. Buyer’s agents have proven value to consumers for decades and the majority of consumers in the US strongly prefer buying a home with the help of a buyer’s agent than not.
- Buyers will have to pay their agent out of pocket at closing. This is highly unlikely since housing affordability is a stated goal of HUD, FHFA, Fannie/Freddie, FHA, and VA. If the BA commission moves to the buyer’s side of the settlement statement, it’s almost a certainty that it will continue to be financed.
- More consumers will go directly to the listing agent. This is an uncertain speculation that is unlikely to come to pass. While we could see a period of turbulence caused by the news cycle, buyers generally have a difficult time and an unpleasant experience buying a property without the help of their own agent. Most people are willing to pay more for good service and a good experience.
- Commission amounts will fall dramatically. This is another uncertain speculation that is also unlikely. The new rules will provide more transparency in fees, which could cause downward pressure on commissions. However, there have been discount and rebate options for consumers for decades, so the idea that the rules open up the floodgates for more discounted service options is patently false.
What happens next with commissions?
This is the big question. There’s little doubt that the role of buyer’s agents won’t change much. The settlement specifically allows for sellers to pay the buyer’s agent commission and specifically allows for the current system of “pay the listing agent the total and the listing agent offers part of this to any buyer’s agent”, which has worked well for years. A system that works well will typically not change much unless forced to. The only thing that must change is where the unilateral offer of compensation can be advertised and this is what will become more clear as the dust settles.
Buyer’s rep agreements explicitly state how much the agent will earn in the transaction. Many agents have used buyer’s rep agreements for years. With the new rule, all agents must use buyer’s rep agreements, which will add transparency to BA commissions and some consumers may choose to shop buyer’s agents. The buyer’s agent commission will become more transparent because of this requirement. (I have to add that our firm absolutely welcomes and encourages transparency.)
What’s happening with listings right now?
This is what’s important to agents, buyers, and sellers. Adhering to relative market standards has proven successful for years and that is unlikely to change. If you price a home aggressively, the commission you pay won’t matter a lot because your price speaks for itself. If you price a home close to fair market value, then the closing costs you’re willing to cover for a buyer matter a lot, as do the commission you’re willing to pay a buyer’s agent. As of this writing, 91.5% of the active listings in ACTRIS/ABOR offer 3% or more to a buyer’s agent.
Closely monitoring for any changes is critical.
The buyer’s rep requirement is not disruptive, but moving offers of compensation off of the MLS is turbulent. Agents want to know how they’ll get paid and this rule potentially creates a void and certainly creates a process change. In Austin, we’re fortunate to have strong and competent leadership at the board level, so waiting for their guidance before forming opinions or making any changes is the smart move. As the dust settles, it’s important to strongly understand all changes that agents and consumers face so that, as agents, we can provide guidance to our own clients while we fortify our own businesses.
