NAR Commission Settlement

What It Means And What It Doesn’t Mean

A newspaper article about realtors coming to a settlement about how Americans buy and sell homes.

By now I’m sure you’ve heard that the National Association of Realtors announced a proposed settlement to address the broker compensation lawsuits that have popped up across the country. The settlement has generated a lot of media attention and unfortunately a lot of what has been reported is misleading so I wanted to give an explanation of what has happened.

Before I even start, this is a proposed settlement that still needs court approval and none of the changes will go into effect until July at the earliest. However, I do expect it will be approved whether in this format or something similar and we are already putting systems into place to guide our clients through any possible changes and give you the best advice we can based on what we know today.

What Is Changing

First I will explain the mechanics of what will change and then talk about what might happen.

Currently you as a home seller get to hire the Broker you want to hire and reach an agreement of what you will pay that Broker. You also get to decide what if any amount the Buyer Agent will be compensated. None of that will change.

What will change is how the Buyer Agent Commission (BAC) is displayed in the Board of Realtors’ Multiple Listing Service (MLS) and any other websites such as Zillow that displays the BAC. Should the settlement go into effect the field in the MLS will be removed so it would not show if the amount, if any, of a commission being paid to the Buyer’s Agent. An agent would not know if the brokerage/Seller is offering compensation to bring the buyer.

This agreement will also require all buyers to sign a buyer agency agreement before looking at any homes with the agent. Since there will be an unknown for the agent on how they will be compensated, the agents will start adding their compensation to the buyer agency agreement. This could lead to commissions becoming a negotiation point at the time of the purchase contract. Commission negotiations have not been allowed in the purchase contract to date because the agents are not a party to the contract. That will change if this settlement is approved.

What Is Not Changing

What’s not changing is people will want to buy and sell homes and the vast majority will want representation. Nobody works for free.

I suspect we will see a variety of different compensation methods. In many cases, at least in the short run, many sellers will still want to offer some form of compensation to allow them to attract the largest buyer pool for their home.

In some cases, buyers may negotiate for the sellers to pay their closing costs which would go towards paying their agent.

I also expect we will see some seller refusing to pay anything towards the buyer’s agent compensation.

Although any of these options are currently available, I suspect we will see more of the non-traditional compensation methods perhaps starting sooner than later.

How This Affects Who You Hire As A Listing Agent

One thing I know for sure that will happen if this settlement is approved it will impact how you decide which listing agent to hire to sell your home.

Between requiring buyers to enter into a representation agreement with a buyer’s agent to see a home and some sellers not wanting to offer compensation we will see an increase in buyers contacting the listing agent directly and wanting to buy a home unrepresented.

That’s why it will be important for listing agents to be more responsive to buyer inquiries, be willing to show homes to unrepresented buyers and close sales without a buyer’s agent involved. It won’t be good enough for a listing agent to tell a possible buyer for your home they should contact their agent to set up a showing because that buyer may not have an agent.

Fortunately for us we have always been more buyer focused with our listings including having open houses where buyers can see a home without a buyer’s agent. That will be even more important going forward once this settlement is approved. Here’s a text I received from a buyer who didn’t have an agent and is currently under contract on one of our listings.

Unintended Consequences

If this settlement is approved, at least for the first 6-18 months, I expect the real estate market to be like the Wild West. That may not be great news for sellers. Here are a few of the unintended consequences…
Buyers who have been shopping for a home for months will be confused by the new system. There’s a saying in sales that a confused buyer can’t buy and that may mean fewer homes going under contract until everyone adjusts.
As a seller not offering compensation may impact your ability to sell and how long it takes to sell.
More contract cancellations are likely to happen if there are more unrepresented buyers who don’t have anyone to explain the process. A real estate attorney I know says when buyers are unrepresented it can be a painful process. I’ve never had a client sued and we have never been sued but it wouldn’t surprise me if we see more litigation after closings from unrepresented buyers saying they didn’t understand something about the transaction.
Some buyers will not want to see homes if the seller is not compensating their agent. After coming up with their down payment, closing costs and money to update a home they may simply not have the money to pay to play and will decide to buy another home where they won’t have to come out of pocket with the compensation at closing.

This is a long explanation but still just a brief overview of what is being discussed. In our business we are always transparent with our clients as if we are playing poker with our cards up. It’s not my job to artificially keep buyer agent commissions high. At the same time when you hire me as a fiduciary it is my responsibility to explain the good with the bad and how decisions may impact you financially.

I am always open to have a conversation with you about what is happening and how it will affect your home sale. By the time our newspaper is published it’s likely I will already know more information. Please feel free to call me with any questions, comments or concerns.

Some exciting developments are taking place in the real estate market, and if you're not actively involved, you might miss out. When you're prepared to have a no-obligation discussion about the realistic selling price of your home and the process involved, feel free to reach out to us at 512-791-7473 or schedule a time at KopaConsultation.com.

If you plan to sell your home, now is the best time to attend our Free Home Selling Workshops. If you want to attend a workshop, contact us, and we will notify you when they are scheduled. As always, you can check KopaWorkshop.com to see the dates and times of our in-person and online Free Home Selling Workshops. For years, home sellers have told me they benefited from attending our events. Sign up at KopaSeminar.com.