Lenders Take Note: Educate Yourself before the NAR Practice Changes Take Effect in August

by Dan Catinella

The National Association of Realtors’ settlement over commission lawsuits nationwide has had cascading effects and continues to make headlines in the market. The proposed reforms push lenders into an even more central role in the homebuying experience, aiming to increase transparency, competition, and consumer choice around buyer’s agent fees or commissions.?

On May 3, the National Association of Realtors (NAR) announced that the settlement stipulations and reforms—notably a rule prohibiting offers of compensation to be displayed on the MLS and requirements for buyers and agents to have a written agreement before home tours that outlines fees and commissions—will take effect on August 17, 2024, allowing the parties involved an adequate window to adapt.?

The changes could leave homebuyers with questions navigating new market complexities. Lenders have the opportunity to demonstrate value to their real estate agent partners and homebuyers as trusted advisors if they can rise to the challenge of educating and guiding borrowers through this new landscape as it evolves before their eyes.

What do homebuyers need to know?

The goal of the lawsuits and the resulting reforms was to foster a more open marketplace for real estate agent services: more transparency, more consumer choice, and more competition. First-time homebuyers could be at the largest disadvantage when these rules go into effect, as they lack knowledge and experience of the homebuying process, don’t have a home to sell, and are already challenged with affordability and down payment requirements. The challenge will be for lenders to educate consumers on how to exercise their newfound choice:?

• Understanding cost vs. value for real estate agent services: With standard commissions more regulated, we’ll see greater cost stratification on real estate agent services as agents actively compete on commissions. Buyer’s agents will get creative with their pricing structures and fee arrangements. Some agents will likely advertise their fees, promoting either high-value or lower-cost services. So how will homebuyers—especially first-time or disadvantaged homebuyers—determine price vs. value when choosing an agent??
• New complexities in price & closing cost negotiations: The outgoing model had sellers paying all buyer agent commissions as part of the sale of their property. Who pays—the seller or buyer—and how buyers' agents receive compensation can now take multiple forms depending on several factors. Of course, buyers can still request that sellers make concessions to cover buyer’s agent fees, in the form of a closing cost credit. But seller concessions are much more difficult to get in a still-red-hot housing market. This may also lead more homebuyers to skip the buyer agent entirely, opting to work directly through the listing agent—entering the most expensive transaction of their lives without expert guidance and unbiased representation.?

What can lenders do now??

Most insiders agree that the landmark reforms will make lenders more central to the homebuying process, particularly for first-time and less-experienced homebuyers. There could also be shake-ups from new leads that many loan officers (LOs)depend on from less experienced buyers’ agents who struggle to articulate their value to homebuyers.?

So, here are five ways lenders can navigate this unsettling time for homebuyers:?

1. Be the first to the consumer: This change validates that LOs need to get to borrowers first as they begin their homebuying journey. LOs can’t be over-reliant on referrals from buyers’ agents—they need to take charge of finding potential buyers and being the primary value-driver in those referral partnerships. This means investing in new forms of Customer Intelligence that give them the intent signals to zero-in on the right people and engage them at the right time prior to even engaging a real estate agent. LOs also need to continue to embed themselves in the local communities they serve and build old-fashioned connections to expand a network of potential borrowers and referral sources. ?This includes evaluating your social network strategy to ensure LOs amplify their personal brands on digital as well.?
2. Focus on education and advice: LOs need to position themselves as the starting point of the homebuying journey. They have a huge opportunity to differentiate by acting as a trusted partner to guide borrowers through every aspect of the homebuying process, not just the financing aspects. Consider proactive borrower engagement that clearly outlines complexities and gives useful tips on becoming mortgage ready, benefits of working with a buyer’s agent, how to choose an agent, and educate on methods that agent commissions can be paid.
3. Help borrowers understand the price vs. value equation: Many homebuyers haven’t spent much time considering what value looks like from a buyer’s agent, and many believe it's simply the process of locating the home. LOs need to help homebuyers understand what to look for, the value the agent provides in all aspects of the purchasing process, so they can make confident decisions that lead them to successful outcomes. Helping homebuyers feel empowered in their homebuying experience will pay serious dividends in loyalty and repeat business.
4. Great buyers’ agents are more valuable partners than ever: Savvy LOs know that a minority of agents are responsible for the majority of transactions. Finding top producers has always been a leading challenge in developing a referral network. Greater transparency and competition will only amplify that stratification between high- and low-producing agents. Good agents will earn even more business as their value becomes more clear—and as competition thins the herd in the overcrowded real estate agent market.?LOs need to make sure they have the tools to nurture and expand their agent referral network as their value becomes more clear. They need to be able to monitor transaction activity in their area to see the top producers, recognize up-and-comers early, and branch out into new geographic areas.
5. Strengthen partnerships with listing agents: Top originators have always leveraged every purchase transaction as an inroad to entice listing agents to work with them. The reforms will make it even more important to find new ways to work with listing agents to drive mutual value. From hosting open-house programs and co-marketing with listing agents, to using Customer Intelligence to drive proactive outreach, LOs need to help listing agents locate potential homebuyers.?This reinforces an earlier point: LOs need to position themselves as the starting point of the homebuying journey—helping borrowers find the right agent, the right home, and ultimately connecting them with the right loan.?

Amid certain uncertainty, go back to the basics?

When these reforms go into effect, it will take time for market forces to work out the kinks and settle into a new status quo. We can make confident predictions about many of the impacts—good and bad—but there’s still plenty up in the air with these proposed reforms. Yet one thing that’s certain is that the changes will create widespread questions and anxiety among homebuyers.?

Lenders need to focus on what they can control: Educate yourself and be ready to show up for borrowers when and how it matters most. Provide the proactive education, guidance, and support they need. Help them make confident, empowered decisions that move them toward their homeownership goals. These are the basics of relationship-building—and they’ll be more valuable than ever as the new real estate landscape takes shape over the next year.

For the most accurate and up-to-date information about the settlement and what it means for consumers, please refer to official NAR sources such as facts.realtor.