Al’s May ’24 Market Watch

May, 2024

The NAR Settlement – What Does It Mean For Buyers And Sellers
Earlier this year the National Association Of Realtors (NAR) announced that it had reached a preliminary settlement agreement related to a range of ongoing litigation pertaining to broker/agent commissions for real estate
transactions. More recently, in late April, a federal judge gave a preliminary sign-off to the approval meaning that
changes offered will become likely. As of right now, these changes are expected to become effective mid-August.
Two Key Elements Of the Agreement
There are two key elements of the agreement that will effect both buyers and sellers.
The first is Buyer Agency/Representation Agreements. A signed Buyer Agency Agreement will be required
prior to an agent showing a property listed on a multiple listing service (MLS). Agreements would need to list a set
compensation amount or rate that the buyer’s agent will receive and indicate how that amount will be determined.
No longer will the seller be able to offer compensation vial the MLS for the buyer’s agent. Once agreed to in the
Buyer’s Agency Agreement, the agent would not be permitted to receive compensation from any source higher than
the amount indicated in the agreement. Buyers would be free to negotiate with agents for different levels of services.
The second concerns Compensation Data In MLS Listings. Once this agreement is in effect, property listings
in an MLS would be prohibited from making offers of compensation to agents/brokers, or disclosing agent/broker
compensation or total agent/broker compensation within the MLS listing. MLS platforms will have to remove any
agent/broker compensation fields from a listing and can not use another listing field to share an offer of compensation. Seller-approved offers of buyer compensation would be allowed on non-MLS listing, or other non-MLS marketing material, including those posted directly on an agent/brokerage website.
These changes do present some interesting questions. These are presented below with answers offered by independent industry followers.
Does The Agreement End The 5 To 6 Percent Commission?
No. The agreement does not directly change how much real estate agents earn in commission. And the NAR is
adamant that it “does not set commissions, and commissions were negotiable long before this settlement,” according to its website.
To list a home on the MLS, agents have had to include buyer commissions. Though it has been possible to advertise a commission of less than 2.5 to 3 percent for the buyer’s agent on the MLS, listing agents have often suggested that doing so may make a seller’s property less attractive to buyer agents versus those with higher commissions.

At the same time, potential buyers have had no incentive to negotiate commissions since sellers had been responsible for that cost. It is argued that buyers do pay for commissions since they are part of the home’s selling
price. But since commissions are not directly coming out of their pockets, buyers have long been indifferent of commissions, with some believing, and some being told, that buyer agent services are free.
Under the new rules, commissions for buyer agents cannot be listed on the MLS. Buyers will have to negotiate
their own compensation via the Buyer’s Agency/Representation Agreement before they work with an agent. However, there are ways for the sellers to still cover buyer agent’s commissions.
Does The NAR Settlement Ban Agents From Advertising Commissions?
No. Agents will still be allowed to discuss and advertise commissions. They simply will not be able to do so via
the MLS.
Compensation to the buyer’s agent could be posted on the websites of the agent, the brokerage, individual property websites, social media, and other advertising resources engaged by the agent. Sellers could still use the MLS
to advertise concessions for buyers, including help with closing costs, to offset the buyer’s commission cost. But the
Buyer’s Agency/Representative Agreement is still the vehicle on compensating the agent.
Will Buyers Have To Pay Their Agent’s Commission?
Buyers will have to negotiate commissions when they sign a contract. That does not mean that buyers will have
to pay the cost though. When the buyer makes an offer to the seller, the question of who pays the buyer’s agent
could become yet another point of negotiation.
A home buyer in a hot market may find it a tough sell in convincing a seller to pay their agent’s cost. But sellers
may agree to foot the bill if they would otherwise be forced to accept a lower price or less favorable terms. It is conceivable that the buyer agent commission may become a concession offered by the seller to attract more buyers,
and therefore a higher price for the home.
One wrinkle, however, is that commissions generally cannot be financed into a mortgage under Fannie Mae,
Freddie Mac, and Federal Housing Administration guidelines. Under current rules, a buyer seeking to finance closing costs would likely need to get a personal loan. That would increase their debt-to-income ratio, which could make
it harder to get approved for a mortgage. Some believe lending rules will change to allow buyers to include commissions in their mortgages.
What Would This Mean For First Time Home Buyers?
This agreement could be hard on first time home buyers. First time buyers often struggle to save cash for a down
payment. Now, paying for the services of an agent, provides another financial hurdle in affording a home, or seeking adequate representation. They may be the group that explores agent services alternatives such as paying per
viewing of a home, or a fixed fee service for drafting an offer, or walking them thru the deal. But this approach could
leave them vulnerable to potentially costly missteps during complex processes like negotiating inspection items,
securing optimal financing terms, or handling agreements.
Will The NAR Settlement Bring Down Home Prices?
Most experts generally believe that any resulting drop in home prices would be modest at best. Perhaps more on
a higher priced home since certain marketing costs are fixed, whether you are selling a $200,000 home or a $2
million home.
But the real driver of high housing prices is the lack of supply. In addition, high mortgage rates are driving many
home owners who locked in rates in 2020 and 2021 to stay put rather than sell and take out a new mortgage at a
significantly higher rate.
Another issue is that, presently, home prices have the buyer’s agent commission built into the list price. But what
happens once that 2.5 percent or 3 percent no longer automatically goes for the buyer’s agent’s commission. Does
the seller drop the price of the home, or keep the price as is. If it is not removed, and buyers end up paying this
commission, then they will effectively have been charged twice, with the seller receiving the main benefit. If the buyer and their agent cannot convince the seller to reduce the price accordingly, buyers could wind up paying even
more for the home.