What Does The New NAR Settlement Mean For You?
What Is The National Associate of REALTORS®?
The National Association of REALTORS® (NAR) is a prominent organization in the real estate industry, dedicated to supporting its members' success. NAR provides opportunities to build expertise and maintain a standard of ethical professionalism. To learn more about NAR and their Realtor code of ethics, visit NAR About US
What is the MLS?
The Multiple Listing Service (MLS) is a comprehensive database used by real estate brokers to share information about properties for sale. It allows brokers to see one another’s listings, ensuring transparency and efficiency in property transactions. The MLS also helps smaller brokerages compete with larger ones by providing equitable access to property listings and market data. For more information on the New Jersey MLS, visit NJMLS.
The Origin of the NAR Settlement
NAR Lawsuit: Burnett v. NAR, et al. Judgment
On October 31, 2023, a federal jury held NAR and certain brokerages accountable for artificially increasing buyer agent commission fees. The lawsuit, Burnett v. NAR, highlighted issues with seller agents publicizing commissions to buyer agents via the MLS, potentially influencing buyer agents to favor higher commission properties. NAR defended its practices, stating commissions have always been negotiable. In March 2024, a proposed settlement was reached to address broker commissions on behalf of home sellers. Read more on the trial. See the NAR Burnett Trial Updates to read more on the trial.
The Problem with the Previous Structure
KeyRealEstateResources.com published an insightful article detailing the key points and changes arising from the NAR Settlement. Typically, commissions in most markets range from 4-6% of the sales price and have always been negotiable. However, many agents set their rates based on the local market average and maintain that rate during negotiations. Traditionally, the commission agreed upon by the seller and their agent is split between the seller’s agent/broker and the buyer’s agent/broker. This practice reflects the societal agreement that:
1) buyers deserve professional representation in such an important financial decision, and
2) buyers don’t typically have a large enough budget to cover their own real estate agent fees on top of the down payment and closing costs.
The Sellers’ Issue with this Structure
Some sellers felt like they were charged too much considering the service that was provided. Some sellers also felt like it was unfair to ask them to pay for the buyer’s agent.
Additionally, even though commissions have always been negotiable, sellers may have felt that they couldn’t offer a lower commission without impacting the agent’s incentive to promote their listing. For example, if they offered 5% instead of the more common 6%, agents might not work as hard or invest as much time in finding a buyer.
The Buyers’ Issue with this Structure
Some buyers had an issue with the idea that the cost of their agent might be essentially rolled into the purchase price; they wondered if the price would have been lower if the seller didn’t have to spend so much on real estate agent commissions.
Additionally, some buyers wondered if their agent acted in their best interest. Did their agent only show them more expensive homes in order to get a higher commission?
For more information on the settlement and how to discuss it with your clients, as well as its impact on Realtors, read on How the NAR Settlement will affect Realtors
What are the main changes?
The mandatory MLS policy changes will take effect on August 12th, 2024. The use of Buyer Representation Agreements is also required by New Jersey State Law starting August 1st, 2024.
What are the New NAR Rules on Commissions?
The agents’ compensation cannot be published on the MLS.
Up until today, the buyer’s agent compensation for any listing was entered in a designated MLS field; the MLS listing would state how much of the sales price you could expect to earn by representing the buyer. The information can no longer be listed. The idea behind this rule change is to allow buyers to negotiate the buyer’s agent fee directly with their agent. However, sellers can still help buyers with this expense; it would just be treated like a concession.
Buyers’ agents must have a written agreement with their buyers.
Many agents have always insisted on getting the buyer’s signature on an exclusive representation agreement to confirm that the agent is entitled to their side of the commission. But now, this agreement must be signed before showing a single property. And it must clearly explain the compensation agreed upon between the agent and buyer. You may already have a Buyer Representation Agreement in place. However, your broker, local board, or attorney may require some revisions to clarify the payment structure.
MLS services cannot require REALTORS/brokers to subscribe to the service.
Many local MLS services have required that agents subscribe to the MLS to be compensated for their service. This requirement is now prohibited.
Impact of the Proposed NAR Lawsuit Settlement
The settlement is designed to make commission and fee structures more transparent, offering consumers clearer information about what they are paying for. It will also provide more choices for buyers and sellers, helping them navigate the real estate market with greater ease. Additionally, the settlement aims to create a fairer market, ensuring that all parties have equal opportunities in real estate transactions.
Have more questions about the NAR Rules on Commissions? Contact us at today at 732-292-5662 or email us at ruma@keyesquire.com
Are you ready to start your real estate journey? If so, contact us here. We'd love to hear from you.