National Association of REALTORS® Settlement and What it Means to You

The recent settlement by the National Association of REALTORS® (NAR) introduces significant changes aimed at benefiting homebuyers during the purchasing process. Starting August 17, 2024, buyers must sign a written agreement with their agents before touring homes. This agreement will specify compensation details, which must be clearly disclosed, objective, and not open-ended. Agents will be restricted from earning more than agreed upon, and it will emphasize that fees and commissions are negotiable. While this may seem like a new requirement, similar practices already existed in some regions. Despite these changes, REALTORS® remain committed to guiding and prioritizing the interests of homebuyers, who have various options to choose from in this updated process.

A licensed professional Realtor must have a signed Buyer Broker Agreement (BBA) before conducting any showings, as mandated by law. This agreement outlines the roles and responsibilities of both the buyer and the Realtor in the home-buying process. While Realtors are obligated to obtain this agreement, buyers can negotiate its duration. Realtors are committed to representing and protecting buyers' interests throughout the transaction, and it's important for buyers to understand this requirement is now a legal necessity for all Realtors.

Seller & Buyer Agents

1. New policies require buyer agents to secure signed agreements from clients, clarifying the compensation involved. This change might initially confuse sellers, who may mistakenly think they don't need to incentivize buyer agents, but ultimately, buyers may struggle to afford representation without seller compensation. Consequently, buyer agents must articulate their value and prepare thoroughly before showing properties, emphasizing the importance of building relationships through a detailed consultation process with clients to understand their needs and establish trust.
2. It’s crucial for agents to invest time in learning about local industry trends, unemployment rates, interest rates, and governmental legislation. While resources provide past market data, agents should focus on current trends to guide clients' decisions. Furthermore, effective buyer agents must be familiar with the entire property inventory, able to explain the nuances of different properties, and seek out off-market opportunities. Ultimately, agents should take the lead in the search process rather than letting buyers dictate it.
3. Buyer agents need to be knowledgeable about diverse loan programs and establish relationships with multiple lenders to offer clients the best options. Additionally, sellers may prioritize factors other than price, such as rent-back periods or closing timelines. Effective negotiation involves communicating with the listing agent to understand the seller's preferences, enabling agents to craft offers that align with both seller and buyer interests.
4. Real estate associations across the nation are preparing for the largest forms revision in history due to recent settlements. Many buyer agents need a solid understanding of existing contract documents, a situation likely to worsen with the impending changes. Buyer agents must ensure their offers adhere to new standards and communicate effectively with listing agents. The underlying issue of the lawsuit stems from a common sales practice where sellers hire agents and offer compensation to buyer agents. Unfortunately, much media coverage has misrepresented the implications of these settlements for consumers, often based on misunderstandings of real estate practices.

Just the Facts

1. Commissions have always been negotiable, the settlement does not impose any standard or limitations on realtor fees, which have always been negotiable. Realtors remain independent and competitive, offering diverse services across various markets. While comparisons are made to real estate practices in other countries, many professionals abroad are salaried employees with benefits, whereas most U.S. real estate agents are commission-based.
2. The settlement will not prevent sellers from paying commissions to buyer's agents. It is ultimately a seller's choice whether to compensate a buyer's agent, with the primary goal being to sell the property on the seller's terms. Offering competitive incentives to buyer's agents can facilitate the sale process.
3. The settlement does not eliminate the financial impact of buyer agent fees for sellers. Although sellers may opt to not pay buyer agent compensation, buyers can include contingencies in their offers requiring sellers to cover these costs or request concessions like closing cost assistance in the amount of the agent's fee.
4. The agreement shifts transaction service costs from sellers to buyers, potentially saving money for consumers. Sellers may only pay listing agents, indicating a change in compensation dynamics. However, realtor services remain necessary and are not free, and this change does not guarantee a reduction in the overall transaction cost.
5. The settlement is unlikely to reduce real estate prices significantly or make homeownership more affordable. Real estate values are determined by supply and demand, not by realtors. While commissions are a transaction expense, other costs like title fees and property taxes also contribute. A hypothetical one percent reduction in commissions would lower the price of a $1,000,000 home to $990,000, which is not a substantial difference. The primary issue affecting affordability is the significant rise in home values in recent years.
6. The settlement represents a significant win for buyers, enabling them to negotiate representation fees. Historically, buyers appreciated having sellers cover agent commissions, which alleviated the need for additional funds at closing. However, most mortgages are ultimately sold to Fannie Mae or Freddie Mac, which do not allow commission financing, and VA loans allow borrowers to pay commissions, but cannot be financed into the VA loan. This raises concerns about the implications for veterans seeking representation in real estate transactions.
7. The settlement aims to compensate victims of real estate consumers harmed by realtors. Although the total settlement amount is large, it averages around $10 per person for qualifying consumers, depending on claim filings. Most of the financial benefit appears to go to class-action lawyers, who are seeking over $80 million in fees.
8. NAR Settlement FAQ's

Existing & New Contracts

1. For active escrows using a listing agreement dated before 7/24. If in contract, the seller must adhere to the existing listing agreement and Multiply Listing Service (MLS) compensation offer. Buyer's agents should secure an MLS printout to document the compensation amount.
2. For active listings not yet in contract, the Disclosure and Modification to Listing Agreement DMLA form is required for sellers to modify their listing agreement. After August 13th, buyer's agent commissions won't be published on MLS, and the listing agreement will reflect only the listing side compensation. The commission in the listing agreement doesn't prevent sellers from paying buyer's agents based on offers. Buyers must check box 3G(3) in the California Residential Purchase Agreement (RPA) and attach the Seller Payment to Buyers Broker (SPBB) and Buyer Representation and Broker Compensation Agreement (BRBC) if they want the seller to compensate their agent.
3. For new listings that haven't been signed up, use the newly released listing agreement. This agreement specifies commission only for the listing agent, while buyer's agents will negotiate their commissions directly with buyers. Buyers can request that the seller include the commission in their offer.

Conclusion

Using a real estate agent offers several advantages, including expert guidance in navigating the home buying process, access to a wider range of listings, effective negotiation skills for securing the best deal, and assistance with the extensive paperwork and legal requirements involved.

To effectively handle complex real estate transactions, it is crucial to manage emotions, foster trust, and nurture relationships. The brokerage community adapts its practices to support both buyers and sellers in changing environments. As these shifts occur, distinguishing between truth and fiction remains essential for all parties involved.

New Forms

On June 25, C.A.R. released 48 new and revised forms as part of its semi-annual update to its standard forms.  C.A.R. has postponed the release date of other forms to ensure that they meet the high standards for use by members and consumers in light of the practice changes associated with the NAR settlement.

Here are a few of the new forms if you're already in contract or in the process of going into contract.

• DM-LA - Disclosure and Modification to Listing Agreement
• RPA - California Residential Purchase Agreement
• BRBC - Buyer Representation and Broker Compensation Agreement
• RLA- Residential Listing Agreement – Exclusive
• SPBB - Seller Payment to Buyers Broker
• BBA - Buyer Broker Agreement

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• NAR Settlement (1)