NAR Settlement Changes: What’s Different for Buyers and Sellers
The recent changes resulting from the NAR Settlement are set to reshape various aspects of real estate transactions. Buyers and sellers should prepare for updated procedures and adjustments in how fees are handled. This includes the introduction of new requirements for buyer agreements and modifications in how buyer agency commissions are managed. Understanding these updates will be crucial for navigating the evolving real estate landscape.
Effective Dates for NAR Settlement Changes
As part of the proposed $418 million settlement in the NAR lawsuit, there will be a few changes for both buyers and sellers in the Tennessee Valley. You might be wondering when these changes will go into effect.
Nationwide, the changes are set to take place on August 17th. This applies to all realtor-owned MLSs. Although the proposed settlement hasn't been officially finalized—and it’s not expected to be until the end of this year or early next year—the changes will still go into effect on August 17th across the U.S. It’s possible that some of these changes might be adjusted over the coming months and into 2025.
Our local board in North Alabama decided late last week to implement these changes earlier, effective August 1st. As a result, all of the changes we’re discussing are now in effect. Matt Curtis Real Estate has already incorporated these updates for both our buyers and sellers. When you contact Matt Curtis Real Estate, we will be ready to address these changes with you.
How the Latest Settlement Changes Buyer Agreements and Home Viewing
One of the main changes with the new settlement is that buyer agreements must now be in place before viewing a home. This applies to anyone involved in the viewing process, even if it's parents, siblings, or anyone else who is old enough to purchase a home. They need to be included in that buyer agreement as well. This can be seen as a downside.
On the positive side, I believe we’ll see more buyer consultations taking place, which will help educate buyers on the process, the estimated funds needed to close, and strategies for navigating the market. This approach benefits both agents and buyers by encouraging a slower, more informed start to the process.
The challenge will come with what we call "pop-tart showings" in the industry, where someone wants to quickly view a home without fully considering the process. Even in these situations, a buyer agreement is still required. If you're just getting to know the agent you’ve called and aren’t ready to commit to a full buyer agency agreement for the entire process, you can consider shortening the agreement period or specifying it to the particular home or homes you’re viewing. This gives you time to build trust with the agent and decide if they are the right fit to help you purchase a home.
How Buyer Agency Fees Are Affected
A second major change is that buyer agency commissions are no longer advertised in the MLS. Previously, when a listing agent met with a seller, they would agree on a listing commission. Often, the listing agent would share that commission, sometimes splitting it evenly with the buyer's broker who brought in the buyer that ultimately completed the sale. This arrangement meant buyers didn’t have to worry about additional out-of-pocket expenses because the seller was covering the commission, which was essentially factored into the purchase price of the home.
Now, buyer agents can no longer see commissions advertised in the MLS. Some brokers will still work with their sellers to offer buyer broker compensation, but they'll look to advertise it through other means such as websites, phone calls, and other emerging platforms where agents can share that information. I don’t believe this was the Department of Justice’s intention with this rule change.
Matt Curtis Real Estate will no longer participate in broker-to-broker commission sharing. Instead, there will be something called seller concessions, where the seller may still choose to pay the buyer’s broker, similar to how they might cover closing costs to help the buyer afford the home. This option will still be available, but we believe broker-to-broker commission sharing should not continue if we follow the spirit of the DOJ's new rules. At Matt Curtis Real Estate, commissions will be kept separate, and while sellers may still pay a significant portion of the buyer broker’s commission, it will be negotiated in the contract rather than advertised on websites or through other channels. Many of our sellers might opt for seller concessions, but these will not be directly tied to buyer broker commissions.
Navigating Buyer Agent Fees
If you're a buyer working with a buyer's agent, what does this process look like? You'll sit down with your agent—whether it's on the hood of a car outside the home, or preferably in an office or coffee shop—to go over a buyer agreement and have a buyer consultation, walking through the entire process. You'll agree on the terms up front with your agent. Many buyers and agents will try to negotiate that fee into the contract. Some sellers, as mentioned earlier, may already be offering buyer commissions, though I believe the better approach is for sellers to offer concessions instead.
These seller concessions can be used for whatever the buyer needs. This is similar to what we've already seen, where buyers might need help with closing costs or, in the current market, rate buydowns to afford a home. Many builders are offering similar incentives right now. So, seller concessions can be used towards closing costs, rate buydowns, or even buyer agency commissions. Many sellers will likely offer this. At Matt Curtis Real Estate, we'll aim to negotiate these costs into the contract so that the seller covers them, helping to minimize the expenses buyers face for buyer agent commissions.
How Real Estate Changes Impact Sellers
All right, we've covered a lot about the changes affecting buyers and, indirectly, sellers as well. Now, let's break it down for the sellers.
First, we’ll be updating the paperwork for sellers. This will now include just the listing fee, rather than a fee that covers both buyer and seller commissions. The paperwork will focus solely on the listing company’s fee.
While some brokerages may continue to share buyer agent commissions, I believe this is the wrong approach and could potentially lead to issues with the Department of Justice or even lawsuits. Many companies, including ours, will be moving towards seller concessions instead. Sellers who are willing to offer concessions to buyers can plan for this upfront. These concessions can be used for whatever the buyer needs, whether it’s to cover buyer brokerage compensation, rate buy-downs, closing costs, or a combination of these.
Buyer broker compensation will also be handled through the contract, rather than being included in the listing agreement or advertised in the MLS. This compensation will need to be detailed in the additional provisions section of the contract, specifying how the buyer broker will be paid.
As a seller, you’ll need to consider any additional expenses that may arise with the sale of your home. This includes not just the sales price, but also any seller concessions for buyer broker compensation or buyer closing costs that may be necessary. These should be addressed in the contract’s additional provisions section.
Will Recent Real Estate Commission Changes Address the Affordability Crisis?
I've seen some articles suggesting that these changes might help address the affordability crisis, but unfortunately, this isn't the solution. Here’s why:
Even in an extreme case where commissions drop by 1% to 3%, it won't significantly impact the affordability crisis. Over the last few years, we've seen a 40% increase in home prices, largely due to the massive amount of money printed during the pandemic. A small reduction in commissions won't offset that 40% increase, so it won't solve the affordability issue.
The main challenge we face is government spending, deficit spending, and the Federal Reserve printing money. These issues won’t be resolved by the proposed changes. Politicians often avoid responsibility for their actions and shift blame to others, proposing solutions like rent control or changes to commission structures. However, the real issue with affordability is higher borrowing costs due to increased interest rates—resulting from Federal Reserve policies—along with inflation caused by deficit spending and money printing. In the best-case scenario, some sellers might benefit from lower buyer agency fees, which means the sellers would actually be the ones benefiting from this proposed change.
In a best-case scenario, some sellers might benefit from lower buyer agency fees, meaning they could come out ahead with these changes. But most buyers likely won't see much improvement, as home prices and values aren't expected to drop because of this. Buyers might get their full commission covered through the contract, which is likely to happen often.
If that doesn’t happen, buyers will need to cover the difference in higher fees, potentially making this a neutral situation for them. Sellers could benefit slightly, but for many, the impact will be neutral as well.
If all these changes seem complicated, that's where we come in. We're the number one real estate team in Alabama, and we stay on top of all these developments for you. Contact the top team in Alabama for the past five years to help guide you through these changes, whether you're buying or selling. We'll help you maximize the value of your home or navigate the purchase process so you don’t end up paying unexpected out-of-pocket fees.
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