NAR Settlement Explained: Has Real Estate Changed for Good?
The NAR settlement has introduced significant changes to residential real estate practices. Designed to enhance transparency and consumer choice, these updates impact how home buyers, sellers, and real estate agents navigate property transactions. Here’s what you need to know.
Helpul Definitions:
MLS: MLS stands for Multiple Listing Services (MLS). These are databases that real estate professionals use to share information about properties for sale.
NAR: The National Association of Realtors (NAR) is the largest trade association for real estate professionals in the United States. They have a big influence on industry regulations and practices.
What is the NAR settlement?
The NAR made an agreement to resolve current lawsuits about how real estate agents are paid. The lawsuits claimed that some of NAR’s policies, like requiring sellers to offer and list payments to buyer’s agents, were unfair. To address these concerns, NAR agreed to change its practices to make real estate transactions more transparent and consumer-friendly. These changes aim to give buyers and sellers more control and clarity in the home buying process.
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How things have worked up until now…
Before this settlement, real estate practices were less transparent, particularly concerning agent compensation and buyer representation. Here's a snapshot of how things used to work:
Buyer’s Compensation on Listings: Sellers often offered compensation to buyer agents, which was publicly displayed on Multiple Listing Services (MLS).
Potential for “Steering”: Because compensation details were visible on listings websites, there was a possibility that some agents might prioritize properties to earn themselves a higher compensation over those best suited for their clients.
Sellers Would Pay the Buyer’s Agent: It was common for sellers or listing agents to pay buyer agents' fees as part of the transaction. While this reduced upfront costs for buyers, it also created confusion about who the buyer’s agent truly represented.
No Mandatory Written Buyer Agreements: Buyers typically worked with agents without formal written agreements. As a result, buyers didn’t understand how much they might have to pay their agent until late in the process.
These practices often left buyers and sellers in the dark about key financial aspects of their transactions. The recent changes address these concerns by prioritizing transparency, fairness, and consumer choice.
What’s Does this Change?
1. Written Agreements for Home buyers
If you’re in the market to buy a home, you’ll now need to sign a written agreement with your real estate agent before touring any properties. This agreement is meant to ensure you understand how your agent will be paid, and if you might be obligated to compensate them out of your own pocket. It includes:
Clear details about how your agent will be compensated.
A statement making sure you understand that you have the opportunity to fully negotiate agent fees.
2. Changes on Listing Websites
Gone are the days when compensation offers to buyer agents could be displayed on listing sites. Instead:
Compensation discussions will now occur offline from the MLS rather than being displayed on the property’s listing.
Sellers can still offer concessions like covering the buyer’s closing costs, but these cannot be directly tied to the agent compensation or displayed on MLS.
Why are things changing?
These updates are designed to:
Promote Fairness: Removing compensation offers from real estate listings promotes fair negotiations, and avoids any implications that these rates are “fixed.”
Increase Transparency: Buyers and sellers now have clearer, written agreements that ensure everyone understands compensation details.
Preserve Consumer Choice: Both buyers and sellers can now negotiate freely, without being bound by historical norms or hidden practices.
Practical Tips for Buyers and Sellers
For Sellers:
Discuss compensation strategies with your agent to determine if offering buyer agent compensation aligns with your goals.
Ensure your agent clearly gets your approval for any payments made to buyer agents.
For Buyers:
Take the time to review and understand your agreement with your agent before signing.
Remember that you have the freedom to negotiate all terms, including how your agent is compensated.
What’s Next for Real Estate Professionals?
Real estate agents and MLS platforms are also adapting to these changes. MLSs are now required to remove compensation fields from listings, and agents must ensure their practices comply with the new rules. Agents who embrace these updates will be well-equipped to navigate this new era of real estate.
When Will these changes take place?
These changes, effective August 17, 2024, have reshaped practices in residential real estate to align with the settlement’s goals of consumer choice, fairness, and transparency.
My Professional Take
While this might seem like big news, really, nothing is changing. Everyone will be paid in the same fashion as always — we as real estate agents are just taking more steps to ensure our client’s understand how that payment works.
Most buyers want to be represented during a home purchase. Most sellers will still want to cover buyer’s commissions anyways; it will make their property more appealing to a larger pool of people.
The biggest change is that there will be a lot more paperwork — but that’s my problem, not yours.
FAQ:
What does NAR mean in real estate?
NAR is an acronym for the National Association of Realtors (NAR). This is the is the largest trade association for real estate professionals in the United States
How much will people get from a NAR settlement?
The settlement includes a $418 million payment from NAR to cover claims and protect its members. This will be paid out to eligible home sellers.
Who is eligible for NAR settlement 2024?
You may be eligible to receive money from this settlement if you sold a home via the MLS between October 31, 2017 and July 23, 2024 and have paid a commission to your brokerage. If you’re unsure of whether or not you qualify, you can call the Settlement Administrator at 888-995-0207.
Is the NAR settlement final?
The settlement has received it’s final legal approval. As with any law, it may still be subject to changes, challenges, and appeals. Many of the agreed-upon practice changes, such as removing compensation offers from MLS and requiring written buyer agreements, have already been implemented.
What’s Next?
These changes pave the way for a more transparent and consumer-focused industry, giving both buyers and sellers more control over their experiences. Whether you’re buying or selling, understanding these changes will help you navigate the process with confidence.
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