NAR Settlement Explained. What You Need to Know.

[Jeet Sangha]

In light of the recent lawsuit against the National Association of Realtors (NAR), There has been significant discussion regarding real estate commissions following this settlement. Today, I want to take this opportunity to ​clarify some things and share what is going to change.

Under the current compensation model, a seller typically pays a commission of 5% or 6% to their listing agent. The listing agent then splits the commission with the agent who brings a qualified buyer, and this percentage is advertised on the MLS for each property. This settlement essentially decoupled the commission; now it's very likely that sellers may refuse to offer any commission on the buy side, and buyers will have to pay out of pocket if they want Realtor representation.

Starting this July, here's what's going to change:

1. Similar to signing a listing agreement before listing a house for sale with an agent, a buyer representation agreement is now required when working with a buyer's agent.

2. When hiring a Realtor to represent a buyer, the buyer and agent will negotiate the commission beforehand as part of the buyer representation agreement.

3. Buyer agent commissions will no longer be advertised on the MLS, but sellers can still offer to pay the buyer's agent commission as part of the purchase agreement or seller concessions.

4. Some sellers may opt not to pay the buyer-side commission, in which case the buyer will be responsible for compensating their agent.

How it may affect buyers and sellers: Sellers may feel that not having to pay the buyer's agent commission is good for them as they can save half of the commission. However, in a competitive market, if a seller down the street from you is offering to pay the buyer agent commission, the buyers are likely to choose that house over yours since they won't have to pay their agent out of pocket. This incentivizes buyers to look at properties that offer buyer agent commission. If you're not offering any commission, you may see reduced buyer activity on your property, or you may get unrepresented buyers, and they may not be fully qualified since they have not been vetted by a buyer's agent. The new policy may also hurt first-time buyers as they are usually cash-strapped. They barely have enough money for a downpayment, and now they have to come up with additional funds to cover the real estate commissions.

Furthermore, it is unlikely to bring home prices down because prices are market-driven and not related to real estate commissions.

I hope this information was helpful; if you want to discuss this in more detail, I'm always available to chat.