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NAR Settlement - What it Means for Buyers, Sellers, Realtors and the Overall Housing Market


NAR Settlement - What it Means for Buyers, Sellers, Realtors and the Market

Sean Ready

With over 2000 homes sold and 500+ five star online reviews, Sean and his team are on a mission to create raving fans out of each client by delivering...

With over 2000 homes sold and 500+ five star online reviews, Sean and his team are on a mission to create raving fans out of each client by delivering...

Mar 18 28 minutes read

Written on 3/19/24.  Will update as we gain more clarity***

As you probably saw in the news, the National Association of Realtors (NAR) proposed a settlement to release itself and a bulk of its members from the Sitzer-Burnett class action lawsuit.  The suit  was filed in Missouri federal court by a group of home sellers in the state against NAR and other defendants, including Anywhere, Berkshire Hathaway HomeServices, Keller Williams and RE/MAX. The plaintiffs claimed that real estate commission rates are too high, buyers’ representatives are paid too much, and NAR’s Code of Ethics and MLS Handbook, along with the corporate defendants’ practices, lead to inflated commission rates.

The proposed settlement still needs to be approved by a judge, has two effects scheduled to take place in July 2024.

Here are the two major changes (from NAR's website):

Compensation offers removed from the MLS: NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them.

Written agreements for MLS participants acting for buyers: NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much. This is already standard in Colorado, however, not every agent followed that guideline.

There is no shortage of media coverage on this story, from pointed and unbiased to completely sensationalized click bait (and everything in between).  There's also plenty of misinformation, chicken little-ing, and, quite frankly, agent-bashing out there.  Personally I don't think nearly enough thought went into potential second or third order consequences.  More on that below.

The commentary and predictions below is just my two cents, for what it's worth, from my nearly twenty years and 2000+ home sales' worth of experience...

1) Decoupling commissions by eliminating MLS advertised Buyer Agent Commissions (BAC) has been a topic of conversation for a long time.

In theory, this is how buyer brokerage compensation has worked for decades:

Client engages buyer broker and the buyer broker compensation is negotiated in an agency agreement. Listings posted in the MLS by listing agents offer a BAC usually at a market level to attract buyers and their agents (usually ranges from 2% to 3%, with outliers on both sides largely depending on current market conditions). 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 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 having the ability to swoop in at the last minute, not having any relationship with the buyer, write their name in the contract and get paid at closing. If listing agent charges a variable rate commission structure (less if there is no BAC 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 scenario fairly common. Sellers, or more exactly, their listing agents, end up paying a BAC when they otherwise wouldn’t have.

My prediction🔮 Some sellers will still offer compensation to the agent who brings the buyer, or risk long market times and lower sales prices by limiting their audience to just buyers who don't have an agent.  It just won't be advertised in the MLS as it has been.  There has to be documented proof (a signed buyer broker agreement) that the agent is representing the buyer.

2) For the buyers that are not in a position to pay for representation out of pocket, this will be a challenge for you.  You'll either need to go at it alone - set up showings with listing agents, write your offer, negotiate against the listing agent (who has a fiduciary responsibility to represent the seller's best interest, source all your own service providers (lender, attorney, title company, inspectors, contractors, etc.), and hope to navigate an arduous process - OR -  find an agent willing to take you on whether they are compensated or not.  

Buyer agency is a massively valuable service, that is hired conditionally without a retainer, and is not likely going away. Buyer agent role does not start and end at home search (see below for more on that). The market and buyer agent fees will get heck of a lot more difficult to navigate, more confusing, and there are new potential pitfalls.  Some buyers will choose to hire an agent, and some won't - this has always been the case and over 90% traditionally have hired an agent. 

My prediction🔮 The percentage of buyers who hire an agent will most likely decline, as many won't have the ability to pay out of pocket at closing (especially on homes where the seller isn't offering a commission).  Buyers with limited cash and VA buyers will feel it the most, unless options emerge to bake it into the purchase price - which will likely happen.  Coordinating showings between buyers and listing agents will be a nightmare, yet listing agents can learn systems for that from colleagues oversees who've done it for years.  I can see some tech companies stepping in to streamline that process.  From there when a buyer wants to write an offer, who knows🤷‍♂️  I'm working on my processes now.

3) Market dynamics affect commissions more than where they're listed in the MLS. Commission compression happens in hot markets when buyers are plentiful and homes sell in days. 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. Many sellers I meet with tell me they have options available that are less expensive than ours, and choose us anyway based on the value they receive.  Frankly there are listing options out there starting at a couple hundred bucks. You get what you pay for.

My prediction🔮 There's still a lot to shake out from this.  If we land in a world where most buyers go direct to seller or listing agent, we'll start to see less sellers offering a commission for buyer's agents.  However I don't see a world where those sellers all get together and say "Hey, we can now all drop our prices by 2-3%"  NO!  They'll take as much as they can get for the house - it's a free market.  I can also see full service listing agents charging more because of the extra hours put in for qualifying and showing buyers, a process previously done by buyer's agents.  We'll have to see how this one plays out.

4) If we DO see a majority of sellers still choose to offer compensation to a buyer's agent, very little is going to change in transaction mechanics (aside from listing agents handling a lot more calls from buyer's agents who don't read the listing remarks). 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.

My prediction🔮 Residential transactions will mimic commercial transactions where either A: the listing remarks include a baked in concession from the seller (that can cover buyer agent compensation) or B: they will get negotiated as part of the deal.  The caveat is if a mass movement of buyers away from representation who don't know to ask for them.

5) Sellers are about to have vastly different experiences - depending on the the strategy they choose - and valuing a home will be a LOT more complicated, if not nearly impossible.  Imagine two homes hit the market at the same time in the same neighborhood.  Both list at a price supported by comps.  One chooses to offer buyer concessions (which can be used to attract agents with buyers), and the other chooses not to (which has always been an option, BTW).  One is open to the entire market, while the other is open only to buyers who don't have an agent.  Which one is more likely to sell?  How much will that impact the ultimate selling prices and duration on the market?  

What if the one open to the whole market sells for 5-10% more than the closed listing in half the time?  When the next seller of that type of home goes to sell, which comp do they use?  Or what if someone in that neighborhood needed an appraisal for things like refinancing, a HELOC, removal of PMI, etc - what if closed listings brought down their value to the point that they can't accomplish their goals?  I have to wonder if this was considered in the courtroom🤷‍♂️

My prediction🔮 Many MLS-es have fields that show what (if any) seller concessions were given at closing.  The ones that don't will need to add them pronto.  Hopefully syndication sites like Zillow add those too, so consumers have full transparency.  Researching property values and strategizing winning listing prices just got a whole lot more complicated and nuanced.  You can't just average out gross selling prices anymore, you have to do the concession math on each individual data point.  Research time will double or triple.

6) I can only laugh when I see media reports claiming that this will make housing more affordable.  Will the sellers who choose not to offer a buyer's agent commission automatically reduce their price by 2-3% across the board?  Or will they just see it as an opportunity to put that in their pocket?  For buyers who want representation and have to pay for it - how is it more affordable for them?  

We live in a free market where prices are dictated by supply and demand.  In 2020-2022 when rates were next to nothing, demand skyrocketed and so did home prices (to the tune of 40%+).  Conversely during the Great Recession when demand was the weakest in history, home prices plummeted.  Market dynamics at work.  If I'm a seller in the post settlement era, I'm offering a concession to the buyer (to attract the widest audience) but I'm also baking that into the price.  I'm not closing my audience and dropping my price.

There have always been winners and losers among consumers in real estate transactions. 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.

My prediction🔮  Home prices will not change a bit as a result of the new rules, and will, as always, follow the law of supply and demand.  Selling a home could theoretically become less costly if buyer agent commissions disappear altogether.  But then that seller has to buy a house (see above - pay for an agent out of pocket, bake it into the purchase price, or forgo an agent all together and achieve unknown results because they've never negotiated a real estate purchase on their own).  The savings are then eradicated.  Buying a home either gets more expensive for the same reasons, or exposes an entire class (unrepresented buyers) to a new element of risk and costs (hello future class action suits?).

There will be a lot of uncertainty for consumers and their agents this year. Navigating 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.  I can see a lot of opportunity for new business models to emerge, a lot of changing business models and, unfortunately, a lot of predatory businesses looking to take advantage of the confusion and provide zero value.  Be careful!

That is a lot of information. You may be left wondering what agents actually do. 

Here's 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 agents do on a daily basis. You have to get to the very end of the list before an agent gets paid a dime, so most is done for free in the hopes of receiving compensation.  We certainly don't talk enough about all the billable hours we put in that aren't billed.

  1. Research all comparable currently listed and sold properties (to properly list or make an offer)
  2. Make appointment with seller for listing presentation
  3. Make appointment with buyer to determine their goals
  4. Send seller or buyer a written or e-mail confirmation of listing appointment and call to confirm
  5. Review pre-appointment questions
  6. Research other sales activity info from MLS
  7. Research Average Days on Market for property of this type, price range, and location
  8. Download and review property tax roll/assessor information
  9. Prepare preliminary Comparable Market Analysis (CMA) to establish fair market value and listing price range and/or potential offer price range
  10. Obtain copy of subdivision plat/ complex lay-out
  11. Research property’s ownership and deed type
  12. Research property’s public record information for lot size and dimensions
  13. Research and verify legal description
  14. Research property’s land use coding and deed restrictions
  15. Research property’s current use and zoning
  16. Verify legal names of owner(s) in county’s public property records and obtain copy of trust or LLC as applicable
  17. Prepare listing presentation package with above materials
  18. Perform exterior curb appeal assessment of subject property
  19. Compile a formal file on property
  20. Confirm current public schools and explain impact of schools on market value
  21. Review listing appointment or buyer appointment checklist to ensure all steps and actions are completed
  22. Review any applicable permit records on property
  23. Add client (buyer or seller) into your database
  24. Set up listing alerts for buyer for properites that meet their criteria
  25. Give seller or buyer an overview of current market conditions and projections
  26. Tour properties for however long it takes to find the right one
  27. Review agent’s and company’s credentials and accomplishments in the market for clients
  28. Present company’s profile and position or niche in the marketplace
  29. Present preliminary CMA to seller or buyer, including comparable properties, sold properties, current listings, and expired listings
  30. Offer pricing or offer strategy with updates to CMA based on tour of home and updates, upgrades professional judgment, and current market conditions
  31. Discuss goals with seller to market effectively
  32. Discuss goals with buyer to determine timeline
  33. Explain market power and benefits of Local MLS Broker Marketplaces
  34. Explain market power of web marketing, IDX and other sites
  35. Explain the work you do behind the scenes and your availability on weekends
  36. Explain role in screening for qualified buyers and protect seller from curiosity seekers
  37. Explain how multiple offers work and what might set your buyer's offer apart from others
  38. Present and discuss strategic master marketing plan
  39. Explain agency brokerage relationship and how commission are earned and paid in a fully transparent manner
  40. Review and explain all clauses in listing and buyer broker agreements, then obtain seller’s or buyer's signature
  41. Review current title information
  42. Gather square footage of info and it's source
  43. Confirm lot size via owner’s copy of certified survey, if available
  44. Note all unrecorded property liens, agreements, easements
  45. Obtain and make copies of house plans, if applicable and available for buyer to review
  46. If new build, review builders contract so buyer knows what they are agreeing to
  47. Prepare showing instructions for buyers’ agents and showing times with seller
  48. Discuss possible buyer financing alternatives and options with seller
  49. Discuss possible financing options with buyer and buyer's lender
  50. Review current appraisal if available
  51. Identify Homeowner Association manager if applicable
  52. Verify Homeowner Association Fees, if any
  53. Order copy of Homeowner Association bylaws, if applicable
  54. Research electricity availability, supplier’s name, and phone number
  55. Have utility companies provide average utility usage from last 12 months of bills
  56. Research and verify city sewer/septic tank system
  57. Calculate average water fees or rates from last 12 months of bills
  58. Confirm well status, depth and output from Well Report, if applicable
  59. Natural Gas: Research/verify availability, supplier’s name, and phone number
  60. Verify security system, current terms of service and whether owned or leased
  61. Review seller property condition disclosure form with seller or buyer as applicable
  62. Review in detail the buyer due diligence checklist with buyer
  63. Ascertain need for lead-based paint disclosure and provide if necessary
  64. Prepare detailed list of property amenities and assess market impact
  65. Prepare detailed list of property’s inclusions and conveyances with sale
  66. Compile list of completed repairs and maintenance items
  67. If property is vacant, review ways to keep it secure
  68. Explain benefits of Homeowner Warranty to seller or buyer as applicable
  69. Place Homeowner Warranty in property file for conveyance at time of sale
  70. Have extra key made for lockbox and one for your file
  71. Verify if property has rental units involved
  72. If the property does have rental units, make copies of all leases to provide to prospective buyer
  73. Verify all rents and deposits
  74. Inform tenants of listing and discuss how showings will be handled
  75. Arrange for installation of yard sign
  76. Complete new listing checklist
  77. Review curb appeal assessment and provide suggestions to improve saleability with possible staging
  78. Review interior décor assessment and suggest changes to shorten time on market
  79. Load listing into transaction management software program
  80. Prepare Local MLS data input sheet
  81. Write property description
  82. Proofread MLS data sheet for accuracy— including proper placement in map
  83. Add property to company’s active listings list
  84. Present listing at company sales meeting
  85. Discuss buyer needs at company sales meeting
  86. Provide seller copies of the listing agreement and other related forms
  87. Hire photographer to take photos for upload into MLS and other syndication sites and use in fliers
  88. Create print and internet ads with seller’s input
  89. Coordinate showings with owners, tenants, and other agents.
  90. Return all calls to buyer or seller client 24/7
  91. Install electronic lock box if authorized
  92. Create CBS (call before showing code) if desired
  93. Prepare mailing and contact list
  94. Generate mail-merge letters to contact list
  95. Order Just Listed labels and reports
  96. Prepare fliers and feedback reports
  97. Review comparable MLS properties regularly to ensure property remains competitive
  98. Prepare property marketing brochure for seller’s review
  99. Arrange for printing or copying of marketing brochures or fliers
  100. Place marketing brochures in all company agent mailboxes
  101. Upload listing to company and agent Internet site, if applicable
  102. Mail out Just Listed notice to all neighborhood residents
  103. Advise network referral program of listing or buyer needs
  104. Provide marketing data to buyers through international relocation network buyers
  105. Provide marketing data to buyers coming from referral network
  106. Provide Special Feature cards for marketing, if applicable
  107. Submit ads to company’s participating internet real estate sites
  108. Price changes conveyed promptly to all internet groups
  109. Reprint/supply brochures promptly as needed
  110. Provide listing feedback emails/texts to listing agents after tourning properties with buyers
  111. Review weekly market study
  112. Attend weekly sales meetings to keep updated on market trends
  113. Discuss with sellers any feedback from showings to determine if changes are needed
  114. Place regular weekly update calls to seller to discuss marketing and pricing
  115. Be in constant contact with buyer so their needs expectations are being met
  116. Promptly enter price changes in the MLS database
  117. Receive and review all Offer to Purchase contracts submitted by buyers’ agents
  118. Evaluate offer(s) and prepare a net sheet for the owner for comparison purposes
  119. Explain merits and weakness of each offer to sellers
  120. Explain merits and weaknesses of buyers offer to buyer so they understand how it will be viewed by seller
  121. Contact buyers’ agents to review buyer’s qualifications and discuss offer
  122. Deliver Seller’s Disclosure to buyer upon request and prior to offer if possible. Upload to the MLS additional documents at time of listing
  123. Confirm buyer is pre-qualified by calling loan officer
  124. Buyer agents ensure buyer is pre-qualified
  125. Obtain buyers’ pre-qualification letter from loan officer if not submitted with offer
  126. Negotiate all offers per seller’s direction on seller’s behalf, set time limit for loan approval and closing
  127. Prepare and convey counteroffers, acceptance or amendments to buyer’s agent
  128. Write offer and explain to buyer in detail
  129. Create excel spreadsheets for easy review on multiple bids if needed
  130. Email or send copies of contract and all addenda to the title company
  131. When purchase contract is accepted, deliver to buyer’s agent
  132. Submit earnest money to listing agent
  133. Record and promptly deposit buyer’s earnest money in appropriate trust account
  134. Disseminate under-contract showing restrictions as seller requests
  135. Ensure buyer understands showing etiquette while touring properties
  136. Make sure buyer understands that many listings have video and audio recordings during showings
  137. Deliver copies of fully signed Offer to Purchase contract to seller or buyer
  138. Deliver copies of Offer to Purchase contract to lender
  139. Provide copies of signed Offer to Purchase contract for office file
  140. Advise seller of additional offers submitted between contract and closing
  141. Change status in MLS to Under Contract
  142. Update transaction management program to show Under Contract
  143. Provide credit report information to seller if property will be seller financed
  144. Assist buyer with obtaining financing, if applicable, and follow-up as necessary
  145. Coordinate with lender on discount points being locked in with dates
  146. Deliver unrecorded property information to buyer
  147. Order septic system inspection, if applicable
  148. Receive and review septic system report, and assess any possible impact on sale
  149. Deliver copy of septic system inspection report lender and buyer
  150. Verify mold, radon or any other inspection ordered, if required for buyer
  151. Order survey if required by buyer
  152. Confirm Earnest Money has been deposited and cleared
  153. Buyer agent to provide proof of earnest money delivery
  154. Follow loan processing through to the underwriter
  155. Add lender and other vendors to your management program so agents, buyer, and seller can track progress of sale
  156. Buyer agents contact lender weekly to ensure processing is on track
  157. Relay final approval of buyer’s loan application to seller
  158. Coordinate with seller for buyer’s professional home inspection
  159. Review home inspector’s report with buyer
  160. Enter completion into transaction management tracking program
  161. Explain seller and buyer responsibilities, and recommend an attorney to interpret any clauses in the contract if requested
  162. Ensure seller’s compliance with included and excluded items and other contractual responsibilities
  163. Assist buyer during the due diligence inspection phase of the transaction
  164. Assist seller with identifying contractors to perform any required repairs
  165. Negotiate payment, and oversee all required repairs on seller’s behalf, if needed
  166. Schedule appraisal
  167. Provide to appraiser any comparable sales used in market pricing
  168. Follow-up on appraisal
  169. Enter completion into transaction management program
  170. Assist seller in questioning appraisal report if it seems too low
  171. Get contract signed by all parties
  172. Coordinate closing process with buyer’s agent and lender
  173. Update closing forms and files
  174. Ensure all parties have all forms and information needed to close the sale
  175. Select location where closing will be held
  176. Confirm closing date and time, and notify all parties
  177. Assist in solving any title problems or in obtaining death certificates
  178. Work with buyer’s agent in scheduling buyer’s final walk-thru prior to closing
  179. Conduct final walk through with buyer
  180. Double check all tax, homeowners’ association dues, utility, and applicable prorations
  181. Request final closing figures from title company
  182. Receive and carefully review closing figures to ensure accuracy of preparation
  183. Confirm buyer and buyer’s agent have received title insurance commitment
  184. Provide homeowners warranty for availability at closing
  185. Forward closing documents to seller as requested
  186. Review documents with title company
  187. Coordinate closing with seller’s next purchase, and resolve any timing problems
  188. 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
  189. Have a no-surprises closing so seller receives a net-proceeds check at closing
  190. Make sure buyer is satisfied after closing with the condition the seller left the property in
  191. Refer sellers to one of the best agents at their destination, if applicable
  192. Change MLS status to Sold. Enter sale date, price, selling broker, etc
  193. Share the warranty paperwork for claims in the future
  194. Attempt to clarify and resolve any conflicts about repairs if buyer is not satisfied
  195. Respond to any calls and provide any information required from office files
  196. If a rental, verify all deposits and prorated rents are reflected accurately on the closing statement
  197. Close out listing in your management program
  198. Act as a client psychologist on life and other critical decisions

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