Thoughts on the NAR Settlement

April 3, 2024
Thoughts on the NAR Settlement

You've probably seen a recent article talking about how selling your home is about to get a lot less expensive because the NAR lost a multi-billion-dollar lawsuit, and in settling the lawsuit they agreed that home sellers will no longer be required, or even able, to specify broker compensation on the MLS. While that sounds like a big deal, the idea that home sellers are going to have big savings after the new rules take effect in July is far from certain.

Nothing in the recent agreement prohibits home sellers from offering compensation to a buyer's broker, it just can't be “on the MLS”. When a buyer's agent is calling about making an appointment for their client to view a property, they are going to ask if the seller is providing compensation for the buyer's agent. If they aren't, that is going to make the home less attractive for the agent to show. It might also make the home less attractive to the buyers because they may have been expecting the seller to provide the funds for their agent.

Many experts are predicting that with buyers having to pay for their own agent that real estate commissions could fall by 30 to 50% as buyers negotiate better terms or forgo an agent altogether. If sellers don't offer any agent compensation, then yes, the buyer will have to pay their agent, however most buyers don't have the money to pay for their own agent along with the other expenses for buying a home. That's where the idea of a buyer's credit comes in.

While home sellers can't publish offers of compensation for a buyer's agent, the NAR has made it very clear sellers can publish a buyer's credit on the MLS. The buyer's credit can go toward closing costs or just to reduce the price of the home, but it can also be used to pay the buyer's agent. As such, you can easily imagine that sellers will be advised by their agent to change from offering 3% commission to the buyer's agent to offering a 3% buyer's credit. Before, sellers complained that they were forced by real estate agents to offer a 3% commission or risk agents not showing their house to buyers. Now, you can see buyers being less interested in seeing a house if it doesn't have a seller credit to help pay for their agent. This could leave sellers in the same spot they were always in, offer 3% or have your home viewed less.

A similarly large disruption of the real estate industry happened back in the 1990s. Before then, the agent that worked with the buyer legally represented and was paid by the seller. After various legal challenges to this practice, the buyer's agent we know today was created. When this happened, no one knew for sure if sellers would still pay the buyer's agent. Like today, dozens of articles heralded the death of the 6% commission. Obviously not much changed as commissions fell less than 1% over the next 30 years. This time might be different, but the stock market is voting on a repeat of the 1990s. The share prices of major brokerages like Compass, Re/Max, and others, are either unchanged or down just single digit percentages since the settlement.

The rule changes may make it seem like sellers will no longer pay for the buyer's agent, but a lack of buyer funds and a historical precedent of the seller paying for the agent mean that this practice is likely to remain. To see a decline in commissions will take more than just a rule change, it will require consumer education and a willingness by consumers to negotiate with real estate agents.

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