NAR Settlement - What it means for Agents. What is means for Consumers
Robert Embley
Founder and Principal Broker. BA in Economics from Fordham University. Licensed since 2010. I operated as a Sales Agent from 2010 to 2015...
Founder and Principal Broker. BA in Economics from Fordham University. Licensed since 2010. I operated as a Sales Agent from 2010 to 2015...
March 25, 2024 Update
The National Association of Realtors settlement has been in the news recently and I am seeing some less than great jobs of reporting on it. Immensely frustrating, but interesting to see Realtor community responses with varying levels of maturity.
There are two relevant changes to brokerage compensation. Both are for buyer agency.
1) Buyer Agent Commission no longer can be offered through the MLS
2) Buyer agents are required to have a formal agency relationship with their client before the first showing
The goal of class action lawsuits was to decouple commissions and make it so that each party pays their own fees. In theory that was accomplished. The realities are very different.
Fascinating week. A lot of agents and brokers griping. There is nothing to be gained by focusing on the negatives. Lets focus on how to navigate this complicated 2024 real estate market.
Here are the two huge changes:
Compensation offers moved off the MLS: NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS. Offers of compensation could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. And sellers can offer buyer concessions on an MLS (for example—concessions for buyer closing costs). This change will go into effect in mid-July 2024.
Written agreements for MLS participants acting for buyers: While NAR has been advocating for the use of written agreements for years, in this settlement we have agreed to require MLS participants working with buyers to enter into written representation agreements with their buyers. This change will go into effect in mid-July 2024.
The second item was already the standard in Utah. However, many agents did not pay attention.
1) Decoupling commissions by eliminating MLS advertised Buyer Agent Commissions (BAC), recently changed to Buyer Broker Compensation (BBC) is LONG OVERDUE.
In theory, this is how buyer brokerage, and agent compensation works.
Client engages buyer broker and the buyer broker compensation is negotiated in Section 2 of the Buyer Broker Agreement. Listings posted in the MLS by listing agents offer a BBC usually at a market level (usually ranges from 2.5% to 3%) to attract buyers and their agents. The attraction is that the seller is covering a significant portion, or all, of the buyer broker’s fee. This limits the cash to close / closing costs required for the buyer to close on a home.
The above theory is how things worked the majority of the time. The actual practice sometimes goes differently. Clear Cooperation rules and required disclosures for Limited Agency or Unrepresented Buyers advise buyers of their right to have their own agent that is paid by the seller. This leads to agents being able to swoop in at the last minute, not having the above relationship with the buyer, write their name in Section 5 of the REPC, and get paid very very well. If listing agent charges a variable rate commission structure (less if there is no BBC payment), as many agents including me do, this does lead to seller paying a higher commission than they would otherwise. Listing portals like Zillow have business models that make this even more possible. Sellers, or more exactly, their listing agents, end up paying a BBC when they otherwise wouldn’t have.
2) I am not bashing buyer agency. Buyer agency is a massively valuable service, that is hired conditionally without a retainer, and is not going away. Buyer agent role does not end at home search. The market, and the fees you pay, just got a heck of a lot more difficult to navigate, more confusing, and there are new potential pitfalls.
3) There will be very little, if any, downward pressure on commissions. Commission compression happens in hot market markets when homes are easy to sell. Commission expansion happens in slower markets when homes are difficult to sell. Some sellers/buyers will end up paying more (more on this below). I can picture the news headlines a year from now that are dumbfounded by this. Commissions have always been negotiable and they vary widely. Media coverage of residential real estate brokerage in recent months focuses on the lack of competition in this industry and collusion to fix commissions above market equilibrium. My experience is that this business is competitive to the point of being cutthroat, commission rates vary widely, and discounters expand in boom markets and contract in tough markets. I get told we have someone that will do it cheaper at almost every consultation I attend. You get what you pay for.
4) For the first time buyers that are not in a position to pay for their own representation, I am so sorry that this happened to you. There will likely be changes to ability to finance your agency fees coming soon
5) Very little is going to change in transaction mechanics. This is a paper shuffle that adjusts the sourcing of the same thing happening. Moving forward, buyers will negotiate seller concessions for covering agency costs, on an individual basis. This is how it has always worked in commercial real estate. This isn’t new. The difference is that buyers will have more control over buyer agency fees.
6) There have always been winners and losers among consumers in residential real estate. That is the reason that you hire a great real estate agent to assist you. Moving forward there will be a larger variance among the winners and losers. Allow me to explain:
Representation in residential real estate transactions is quantified in Transaction Sides. If you are selling your house and buying a new home there are four transaction sides. Representation of seller and representation of buyer on your home sale. And the same thing on the home that you buy. Historically you were involved in three sides and paying for two. You paid listing agent and buyer agent on your sale. Your buyer agent is paid by the seller on your purchase. Consumers were able to plan accurately. Moving forward, this certainty is gone. Lets paint a picture for a worst case scenario. You list your house with a listing broker. Offer that you accept has you agreeing to pay buyer broker. On your purchase you are unable to negotiate coverage of your agency costs and you have to pay you own. You just paid for three transaction side where you used to pay for two. Or as an alternative, you still have to pay the two sides of your sale and you do not receive the benefits of buyer agency on your purchase.
3/19/2024 update.
NAR Class Action Settlement update from legal council at the Salt Lake Board of Realtors. Three relevant points:
A) After July, no Buyer Agent Commission (BAC) may be offered on the MLS (stay tuned for more specifics dates). However, listing brokers and sellers may continue to offer compensation for buyer broker services, not on the MLS (e.g., by email, calls, texts, flyers, newsletter, etc.). Offers of compensation to the Buyer Broker are not going away - they are not illegal.
B) Brokers can publish Buyer Agent Commissions for their own listings on their own websites. Although the MLS is prohibited from publishing a BAC, the settlement allows brokers to offer a BAC on their own website for their own company listings.
C) Sellers may agree to pay buyer broker fees and seller concessions in the purchase contract. See the Real Estate Brokerage Payment Addendum. There will likely be updates to Utah forms to address seller paid buyer broker fees as well as updates to the agency agreements in the near future.
Lets picture another scenario where commission rates decrease. Media coverage that I read argues that this will cause home prices to decrease by the same amount. This is an argument that is up in the clouds in fantasy land. Savvy sellers are still going to sell for full market value. If they have savings, they will pocket those savings.
There will be a lot of uncertainty for consumers and their agents this year. It wont be easy. My advice is to hire the best representation that you can find. If you are waiting for things to shake out, crossing your fingers that real estate will become more affordable, I think you will likely be disappointed.
Resources from the National Association of Realtors
Settlement Agreement Facts
That is a lot of information. You may be left wondering what a buyer agent does. The CEO of the Salt Lake Board of Realtors recently posted something that I thought was so incredibly insightful. I will share it with you.
"I find it incredibly ignorant when class action attorneys contend that the role of a buyer's agent is greatly diminished with the advent of online property searches. Like locating a suitable home for the buyer is the only task buyer agents do. It is much more than that.
I'll post a short list of 198 possible tasks buyer (and seller) agents do on a typical real estate transaction. I don't think this even scratches the surface for what Realtors® do on a daily basis.
- Research all comparable currently listed and sold properties (to properly list or make an offer)
- Make appointment with seller for listing presentation
- Make appointment with buyer to determine their goals
- Send seller or buyer a written or e-mail confirmation of listing appointment and call to confirm
- Review pre-appointment questions
- Research other sales activity info from MLS
- Research Average Days on Market for property of this type, price range, and location
- Download and review property tax roll/assessor information
- Prepare preliminary Comparable Market Analysis (CMA) to establish fair market value and listing price range and/or potential offer price range
- Obtain copy of subdivision plat/ complex lay-out
- Research property’s ownership and deed type
- Research property’s public record information for lot size and dimensions
- Research and verify legal description
- Research property’s land use coding and deed restrictions
- Research property’s current use and zoning
- Verify legal names of owner(s) in county’s public property records and obtain copy of trust or LLC as applicable
- Prepare listing presentation package with above materials
- Perform exterior curb appeal assessment of subject property
- Compile a formal file on property
- Confirm current public schools and explain impact of schools on market value
- Review listing appointment or buyer appointment checklist to ensure all steps and actions are completed
- Review any applicable permit records on property
- Add client (buyer or seller) into your database
- Set up listing alerts for buyer for properites that meet their criteria
- Give seller or buyer an overview of current market conditions and projections
- Tour properties for however long it takes to find the right one
- Review agent’s and company’s credentials and accomplishments in the market for clients
- Present company’s profile and position or niche in the marketplace
- Present preliminary CMA to seller or buyer, including comparable properties, sold properties, current listings, and expired listings
- Offer pricing or offer strategy with updates to CMA based on tour of home and updates, upgrades professional judgment, and current market conditions
- Discuss goals with seller to market effectively
- Discuss goals with buyer to determine timeline
- Explain market power and benefits of Local MLS Broker Marketplaces
- Explain market power of web marketing, IDX and other sites
- Explain the work you do behind the scenes and your availability on weekends
- Explain role in screening for qualified buyers and protect seller from curiosity seekers
- Explain how multiple offers work and what might set your buyer's offer apart from others
- Present and discuss strategic master marketing plan
- Explain agency brokerage relationship and how commission are earned and paid in a fully transparent manner
- Review and explain all clauses in listing and buyer broker agreements, then obtain seller’s or buyer's signature
- Review current title information
- Gather square footage of info and it's source
- Confirm lot size via owner’s copy of certified survey, if available
- Note all unrecorded property liens, agreements, easements
- Obtain and make copies of house plans, if applicable and available for buyer to review
- If new build, review builders contract so buyer knows what they are agreeing to
- Prepare showing instructions for buyers’ agents and showing times with seller
- Discuss possible buyer financing alternatives and options with seller
- Discuss possible financing options with buyer and buyer's lender
- Review current appraisal if available
- Identify Homeowner Association manager if applicable
- Verify Homeowner Association Fees, if any
- Order copy of Homeowner Association bylaws, if applicable
- Research electricity availability, supplier’s name, and phone number
- Have utility companies provide average utility usage from last 12 months of bills
- Research and verify city sewer/septic tank system
- Calculate average water fees or rates from last 12 months of bills
- Confirm well status, depth and output from Well Report, if applicable
- Natural Gas: Research/verify availability, supplier’s name, and phone number
- Verify security system, current terms of service and whether owned or leased
- Review seller property condition disclosure form with seller or buyer as applicable
- Review in detail the buyer due diligence checklist with buyer
- Ascertain need for lead-based paint disclosure and provide if necessary
- Prepare detailed list of property amenities and assess market impact
- Prepare detailed list of property’s inclusions and conveyances with sale
- Compile list of completed repairs and maintenance items
- If property is vacant, review ways to keep it secure
- Explain benefits of Homeowner Warranty to seller or buyer as applicable
- Place Homeowner Warranty in property file for conveyance at time of sale
- Have extra key made for lockbox and one for your file
- Verify if property has rental units involved
- If the property does have rental units, make copies of all leases to provide to prospective buyer
- Verify all rents and deposits
- Inform tenants of listing and discuss how showings will be handled
- Arrange for installation of yard sign
- Complete new listing checklist
- Review curb appeal assessment and provide suggestions to improve saleability with possible staging
- Review interior décor assessment and suggest changes to shorten time on market
- Load listing into transaction management software program
- Prepare Local MLS data input sheet
- Write property description
- Proofread MLS data sheet for accuracy— including proper placement in map
- Add property to company’s active listings list
- Present listing at company sales meeting
- Discuss buyer needs at company sales meeting
- Provide seller copies of the listing agreement and other related forms
- Hire photographer to take photos for upload into MLS and other syndication sites and use in fliers
- Create print and internet ads with seller’s input
- Coordinate showings with owners, tenants, and other agents.
- Return all calls to buyer or seller client 24/7
- Install electronic lock box if authorized
- Create CBS (call before showing code) if desired
- Prepare mailing and contact list
- Generate mail-merge letters to contact list
- Order Just Listed labels and reports
- Prepare fliers and feedback reports
- Review comparable MLS properties regularly to ensure property remains competitive
- Prepare property marketing brochure for seller’s review
- Arrange for printing or copying of marketing brochures or fliers
- Place marketing brochures in all company agent mailboxes
- Upload listing to company and agent Internet site, if applicable
- Mail out Just Listed notice to all neighborhood residents
- Advise network referral program of listing or buyer needs
- Provide marketing data to buyers through international relocation network buyers
- Provide marketing data to buyers coming from referral network
- Provide Special Feature cards for marketing, if applicable
- Submit ads to company’s participating internet real estate sites
- Price changes conveyed promptly to all internet groups
- Reprint/supply brochures promptly as needed
- Provide listing feedback emails/texts to listing agents after tourning properties with buyers
- Review weekly market study
- Attend weekly sales meetings to keep updated on market trends
- Discuss with sellers any feedback from showings to determine if changes are needed
- Place regular weekly update calls to seller to discuss marketing and pricing
- Be in constant contact with buyer so their needs expectations are being met
- Promptly enter price changes in the MLS database
- Receive and review all Offer to Purchase contracts submitted by buyers’ agents
- Evaluate offer(s) and prepare a net sheet for the owner for comparison purposes
- Explain merits and weakness of each offer to sellers
- Explain merits and weaknesses of buyers offer to buyer so they understand how it will be viewed by seller
- Contact buyers’ agents to review buyer’s qualifications and discuss offer
- Deliver Seller’s Disclosure to buyer upon request and prior to offer if possible. Upload to the MLS additional documents at time of listing
- Confirm buyer is pre-qualified by calling loan officer
- Buyer agents ensure buyer is pre-qualified
- Obtain buyers’ pre-qualification letter from loan officer if not submitted with offer
- Negotiate all offers per seller’s direction on seller’s behalf, set time limit for loan approval and closing
- Prepare and convey counteroffers, acceptance or amendments to buyer’s agent
- Write offer and explain to buyer in detail
- Create excel spreadsheets for easy review on multiple bids if needed
- Email or send copies of contract and all addenda to the title company
- When purchase contract is accepted, deliver to buyer’s agent
- Submit earnest money to listing agent
- Record and promptly deposit buyer’s earnest money in appropriate trust account
- Disseminate under-contract showing restrictions as seller requests
- Ensure buyer understands showing etiquette while touring properties
- Make sure buyer understands that many listings have video and audio recordings during showings
- Deliver copies of fully signed Offer to Purchase contract to seller or buyer
- Deliver copies of Offer to Purchase contract to lender
- Provide copies of signed Offer to Purchase contract for office file
- Advise seller of additional offers submitted between contract and closing
- Change status in MLS to Under Contract
- Update transaction management program to show Under Contract
- Provide credit report information to seller if property will be seller financed
- Assist buyer with obtaining financing, if applicable, and follow-up as necessary
- Coordinate with lender on discount points being locked in with dates
- Deliver unrecorded property information to buyer
- Order septic system inspection, if applicable
- Receive and review septic system report, and assess any possible impact on sale
- Deliver copy of septic system inspection report lender and buyer
- Verify mold, radon or any other inspection ordered, if required for buyer
- Order survey if required by buyer
- Confirm Earnest Money has been deposited and cleared
- Buyer agent to provide proof of earnest money delivery
- Follow loan processing through to the underwriter
- Add lender and other vendors to your management program so agents, buyer, and seller can track progress of sale
- Buyer agents contact lender weekly to ensure processing is on track
- Relay final approval of buyer’s loan application to seller
- Coordinate with seller for buyer’s professional home inspection
- Review home inspector’s report with buyer
- Enter completion into transaction management tracking program
- Explain seller and buyer responsibilities, and recommend an attorney to interpret any clauses in the contract if requested
- Ensure seller’s compliance with included and excluded items and other contractual responsibilities
- Assist buyer during the due diligence inspection phase of the transaction
- Assist seller with identifying contractors to perform any required repairs
- Negotiate payment, and oversee all required repairs on seller’s behalf, if needed
- Schedule appraisal
- Provide to appraiser any comparable sales used in market pricing
- Follow-up on appraisal
- Enter completion into transaction management program
- Assist seller in questioning appraisal report if it seems too low
- Get contract signed by all parties
- Coordinate closing process with buyer’s agent and lender
- Update closing forms and files
- Ensure all parties have all forms and information needed to close the sale
- Select location where closing will be held
- Confirm closing date and time, and notify all parties
- Assist in solving any title problems or in obtaining death certificates
- Work with buyer’s agent in scheduling buyer’s final walk-thru prior to closing
- Conduct final walk through with buyer
- Double check all tax, homeowners’ association dues, utility, and applicable prorations
- Request final closing figures from title company
- Receive and carefully review closing figures to ensure accuracy of preparation
- Confirm buyer and buyer’s agent have received title insurance commitment
- Provide homeowners warranty for availability at closing
- Forward closing documents to seller as requested
- Review documents with title company
- Coordinate closing with seller’s next purchase, and resolve any timing problems
- If buyer is selling current home on contingency, be on top of that transaction in every aspect to not jeopardize the purchase of the new home
- Have a no-surprises closing so seller receives a net-proceeds check at closing
- Make sure buyer is satisfied after closing with the condition the seller left the property in
- Refer sellers to one of the best agents at their destination, if applicable
- Change MLS status to Sold. Enter sale date, price, selling broker, etc
- Share the warranty paperwork for claims in the future
- Attempt to clarify and resolve any conflicts about repairs if buyer is not satisfied
- Respond to any calls and provide any information required from office files
- If a rental, verify all deposits and prorated rents are reflected accurately on the closing statement
- Close out listing in your management program
- Act as a client psychologist on life and other critical decisions"