![Real Estate Rules Are Changing On August 17th [NAR Settlement]](https://media.licdn.com/dms/image/v2/D4E12AQGFzlV4RoSwGg/article-cover_image-shrink_720_1280/article-cover_image-shrink_720_1280/0/1721751483954?e=2147483647&v=beta&t=SOzEFs5WgaEahzsWQKnI54E7a_DBomWC54sYMKLdleM)
Real Estate Rules Are Changing On August 17th [NAR Settlement]
Tyler Forte ??
Co-Founder & CEO @ Felix Homes | Nashville Real Estate Entrepreneur & Broker
The rules in residential real estate are changing on August 17th, 2024 due to the historic NAR (National Association of Realtors) settlement. Keep reading for a brief recap of the lawsuit, a summary of the settlement, most importantly, the impact it will have on buyers and sellers.
?? Allegations - The National Association of Realtors (NAR) faced multiple class-action lawsuits regarding its commission practices.?The lawsuits allege that NAR's rule, requiring home sellers to offer a commission to the buyer's broker as a condition of listing their property on Multiple Listing Services (MLS), inflates costs and restricts competition.
?? The Claims - The lawsuits allege this commission-sharing practice violates antitrust laws by creating an unfair market, which in turn keeps commission rates artificially high.
?? Sitzer/Burnett - The most significant class-action case was Sitzer/Burnett which was filed in a Missouri federal court. The plaintiffs were a group of home sellers and the the defendants included the National Association of Realtors (NAR) and several major real estate brokerages, such as Keller Williams, RE/MAX, and?Anywhere Real Estate which owns brands like?Century 21 and Coldwell Banker.
?? The Settlement ?- On April 24th, 2024, a federal judge in Missouri granted preliminary approval of the National Association of Realtors' (NAR) ?antitrust settlement of commission lawsuits. As a result of the settlement, there are several "practice changes" that will take effect on?August 17th, 2024. In addition to these practice changes, the NAR and several brokerages must pay:
New Rule:?
The MLS is no longer allowed to display a "compensation field".?
How It's Done Today:
Since I am a Broker and member of the MLS – Realtracs in Middle Tennessee, I can look up how much the seller is offering to compensate the broker that brings the buyer. This field is located at the bottom of every MLS listing (see example below).
How It Will Work After August 17th:
Since the MLS will no longer be allowed to have a compensation field, they have decided to add an optional field called "Seller Concessions Offered" (see example below).?
According to Realtracs, this field is not meant to replace the compensation field ??
Instead, it allows the seller to advertise a specific amount of concessions that the buyer can then use at their discretion. Buyers can choose to use these concessions to pay their agent –?so is it really that different from the compensation field that is being removed?
In addition to the concessions field on the MLS, listing agents can still advertise cooperating compensation (i.e. buyer's agent commission) on their brokerage website, social media posts, and direct communication with the buyer's agent via call or text.
New Rule:?
Prior to touring a single house, the buyer and their agent must have a signed "Buyer Representation Agreement". This agreement is required to outline the compensation that is owed to the buyer's agent?irrespective of whether or not the seller is willing to offer a buyer's agent commission (or seller concessions).?
Furthermore, the compensation agreed to in the Buyer Representation Agreement must be a fixed dollar amount or a percentage of the sales price. It cannot be "open-ended" such as "whatever the seller is willing to offer to a buyer's agent".
How It's Done Today:
Some brokerages have required prospective clients to sign a Buyer Representation Agreement before agreeing to tour any homes although in my experience, this has not been the norm.
At Felix Homes, we do not require our clients to sign a Buyer Representation Agreement until they decide they want to write up an offer.?
Why? Because we feel it's important for our clients to get to know us before being locked into a legal contract. That said, once a client is ready to write up an offer, it is critical that a Buyer Rep Agreement is in place.
How It Will Work After August 17th:
Come August 17th, buyers will have no choice but to sign a Buyer Rep Agreement if they would like to tour a home. This includes virtual tours as well.
If a buyer is not comfortable signing this agreement, their only option would be to go to open houses or call the listing agent to see if they will show them the home (not very likely in my experience).
领英推荐
Scenario 1:
Let's say a buyer would like to tour a home – 123 Main Street which is currently listed for $600,000. They reach out to a Realtor through Zillow who convinces them that they need to sign a Buyer Rep Agreement with?3% compensation. The Realtor reassures the buyer that they will do their best the ensure the seller pays this 3% commission.?
The buyer agrees to sign and they tour the home –?the buyer falls in love, it's everything they've been looking for. But, the seller is not offering any concessions and is unwilling to pay the buyer's agent's commission. The buyer's agent says you have two choices:?
1. ?Keep looking for homes where the seller is willing to pay the buyer's agent's commission.
2. Pay me directly out of your pocket – that's an additional $18,000 that the buyer must come up with on top of their lender fees and closing costs.
Scenario 2:
A buyer would like to tour a home – 123 Main Street which is currently listed for $600,000. They reach out to a Realtor through Zillow who convinces them that they need to sign a Buyer Rep Agreement with 2.5% compensation.?
This time, the buyer is smart and luckily read this very email so they know that they are obligated to compensate their agent directly if the seller is not offering concessions.
The buyer tells their agent, "I don't want to get my hopes up so I only want you to show me homes where the seller is willing to pay your 2.5% commission."
The agent agrees and only sends his client listings where the seller has offered at least 2.5% in concessions.?
The issue with this scenario is it can constitute steering – the very principle the Department of Justice has been criticizing the NAR of for decades!?
Scenario 3:
The buyer doesn't want to sign a Buyer Rep Agreement so they decide to remain unrepresented and go to open houses. They find a home they like and tell the listing agent, who represents the seller, that they would like to write up an offer and represent themselves!
At this point, the listing agent will be thinking one of two things:
1. I am not taking this buyer seriously. They are inexperienced when it comes to real estate transactions and I know this transaction will be a nightmare because of it.?
2. Great, an inexperienced buyer who wants to represent themselves, time to take full advantage of them!
None of the scenarios outlined above seem ideal for sellers or buyers. Granted, it's still too early to fully understand how things will play out.?
Personally, I don't expect much to change in the short term. I think sellers will use the new "concessions field" as they did the "compensation field" and it will be business as usual.?
That said, if we enter back into a strong seller's market (like 2021) or if buyers push back and refuse to sign a Buyer's Rep Agreement with a 3% commission, I can see a world in which commissions start to come down across the board.
One thing I know for sure is that the new rules disproportionately impact first-time homebuyers as well as lower-income homebuyers. For folks that have the money, they can choose to hire an agent and pay them a 3% commission out of pocket if needed.?
Try telling a first-time home buyer with barely enough money saved for a downpayment that they will have to come up with an additional $10K or more to pay their agent ??
If you've made it this far,?I'd like to know what you think!?Will the changes lead to a positive or negative outcome for consumers?
Felix Homes is where five-star service meets low commissions! To date, we've saved our clients?$1,441,625 in commission fees and have earned 107 five-star reviews on Google!
How are we able to offer five-star service AND lower commission fees? It's simple:
1. We're an independently owned brokerage –?not a franchise which allows us to keep more of the commission we earn.?
2. By offering a lower commission, more folks want to work with us which means we close more deals. By closing more deals, we can pass more savings along to our customers!
Social Media and Dispo Marketing Wizard
3 个月Very informative, it helped me to write an arcticle, thank you very much!
I help Nashville startups win- raise capital, build a team, find early customers | Investor
4 个月this is a great breakdown
Partnerships @ Jellyfish. Previously co-founder of Wagr, acquired by Yahoo Sports | HBS | Forbes 30U30 | WashU | Partnerships, Strategy & Product
4 个月Thanks Tyler for sharing this analysis! Everything I've been seeing/reading is about buyer's agents becoming extinct but...reading this, it seems like we may end up in a world where it's business as usual and buyer's agents simply reach out to seller's agents before touring homes. More upfront paperwork -- yay ??