Making Sense of the NAR Settlement Agreement

May 8, 2024

You’ve probably heard of the National Association of Realtors (NAR) lawsuit with a number of plaintiffs. It’s been all over the news recently and not everyone understands or knows what the end result will be. The NAR will pay out a large sum and realtors individually will be unaffected in terms of having to pay any fines. Unfortunately, there has been a lot of misinformation on the subject even from what some might deem to be reliable sources.

For the record, commissions have always been negotiable, but now there will be better disclosure and the seller and buyer commissions will not be tied together, nor will commission percentages be posted in local MLSs.

While the court still needs to approve the settlement agreement during the summer of 2024, it is important to understand what the agreement covers and how that differs from how things are done today. Here is a breakdown of the current versus proposed methods:

POSTING COMMISSIONS IN THE MLS

CURRENTLY, commission percentages are posted in the Multiple Listing Services (MLSs) and available for all agents to see. Websites such as Zillow.com and Realtor.com pull their listing information directly from various MLSs to display the information on their websites. On Zillow, the buyer agency commission percentage is visible to the public.

POTENTIALLY, should the settlement agreement be approved, there will be no mention of commission in the MLSs. And as a result, there won’t be any mention of commission percentages on third-party websites such as Zillow or Realtor.

WHO NEGOTIATES COMMISSIONS

CURRENTLY, the buyer’s and seller’s agent commissions are negotiated and offered together as part of the listing agreement. Yes, presently, all commissions are negotiated, but often agents just inform their clients what is commonly done without a more detailed discussion about who pays what. The seller often pays both the buyer’s agent and the seller’s agent commissions, but not always. Buyers are often told the seller is paying all the commissions, but the reality is this is paid by the buyer and taken out of the seller’s proceeds. In essence, the buyer is paying for it in the total cost of the property they are purchasing.

POTENTIALLY, the two commissions will be separated whereas the buyer’s agent commission will be negotiated between the buyer and buyer’s agent, and the seller’s agent commission will be negotiated by the seller and the seller’s agent. The buyer’s agent commission will no longer be dictated by the seller and seller’s agent. And the seller will still have the option to offer to contribute towards the buyer’s agent commission. However, as in all offers, terms are negotiated upon receipt of an offer.

BUYER/BROKER AGREEMENTS

CURRENTLY, Buyer/Broker Agreements—legally binding contracts between a home buyer and a real estate agent that outlines the terms and conditions of their working partnership—are optional. When utilized, they include a mutually agreed upon commission percentage.

POTENTIALLY, Buyer/Broker Agreements would be mandatory. During the discussions leading up to signing a Buyer/Broker Agreement, the buyer will have the opportunity to have a detailed discussion and understanding of what they are getting in terms of buyer representation, their agent’s responsibilities, and the commission percentage they will pay.

COMMISSIONS

It’s important to note, that the settlement agreement will not mean a cut or reduction in commissions. As previously stated, buyer’s agents and seller’s agent commissions would be negotiated and shown separately should the proposed NAR settlement agreement go into effect. In many cases, this will result in a reduction in commissions, because the market will tend to influence the outcome.

SUMMARY

With the pending court approval of the settlement agreement, a homebuyer needs to understand the value your real estate agent brings to the table. When choosing a buyer’s agent, the buyer must do their homework and research potential agents. Interview them, ask lots of questions, and read online reviews. Ask friends and family for a referral then ask why they would recommend them. And ask candidates for a reference.

The way real estate transactions occur is very likely to change, but we think it will be for the better. There will be better disclosure and understanding for the public. Transparency is always a good thing and the new rules will allow for a clearer understanding of what to expect from all real estate agents.

For years, Reisman Realty has utilized Buyer/Broker Agreements to establish an even playing field and to set expectations for both parties. We do this in all commercial transactions as well as residential transactions, so our feeling is that this settlement will raise the quality and integrity across the entire real estate profession. This will exactly mirror what our clients have come to expect from us.