FAQs for Real Estate NAR Settlement Changes for Realtors, Buyers and Sellers effective August 17, 2024

Here are some key changes happening in real estate effective August 17, 2024:

Offers of Compensation

New MLS rule prohibit offers of real estate commission on the Multiple Listing Service (MLS). Although offers of compensation could not be communicated via an MLS, they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals.

Written Buyer Representation Agreements

This new rule requires Realtors®/ MLS participants working with buyers to enter into written agreements with their buyers before any in-person tours or virtual tours of homes.

The written buyer/broker agreement ensures transparency and a clear understanding of agent responsibilities and duties to their buyers including real estate agent compensation payment.

These changes apply to all buyers, sellers, and Realtors® nationally, not just here in San Diego and also include all non-Realtors® clearly working with buyers, AND are members of an MLS that have opted into the NAR settlement.

Read the updated NAR Settlement FAQs here.

Update: The NAR settlement is still subject to final court approval on a hearing requested for November 26, 2024.

Previously, the seller and the listing broker/agent determined the real estate commission for the buyer’s agent at the time of signing a listing contract, which was then published on the Multiple Listing Service (MLS).

Since it was typically the seller who sets the compensation and pays for it directly, listing agents included this in the calculation of the seller’s net proceeds sheet (purchase price minus any seller outstanding loan on the property and selling expenses such as escrow, title fees, real estate agent commissions) they provide to the sellers.

In the old way, it seemed like the buyer was NOT paying for their own agent’s compensation and it was the seller who paid both buyer/seller side commissions. Some erroneously thought that it was free to use a buyer’s agent.

But if you change the way you look at things it was actually the buyer who paid for everything indirectly. Think about it, a seller’s illiquid property becomes liquid funds that ultimately pay for the seller’s costs such as real estate commission, all thanks to the buyer who funds their purchase with their cash and/ or mortgage amount at close of escrow.

From August 17, 2024, onward, it’s up to the buyer and their buyer’s agent to determine and negotiate the real estate compensation and put it into writing using a buyer representation agreement before seeing homes together.

Now more than ever, buyers need to be selective in choosing the Realtor® they want to work with and find someone who is aligned with their interests and can provide the services to help them achieve their real estate goals.

Experienced and professional Realtors® have immense value in representing clients during a transaction. These agents bring a wealth of first-hand knowledge and experience that serves as a critical defense in safeguarding the generational wealth that their clients have built through decades of hard work.

It is a formal contract between a homebuyer and a real estate broker. This agreement outlines the terms and conditions of the working relationship, including the duties and obligations of both parties, and details how the broker will be compensated for their services.

Key Elements of a Buyer Representation Broker Agreement

Scope of Services: The agreement specifies the range of services the broker will provide, such as searching for properties, scheduling viewings, assisting with offers, and negotiating terms.

Duration: The agreement outlines the time period during which the broker will represent the buyer. This can range from a day, a few weeks to several months, depending on the market and the buyer’s needs.

Compensation: The agreement details the compensation the broker will earn for their services.

Compensation can be structured in various ways but not limited to:

Percentage of Purchase Price: A common method where the real estate broker earns a commission based on a percentage of the final purchase price.

Flat Fee: A fixed amount agreed upon at the beginning of the agreement.

Hourly Rate: In some cases, brokers may charge an hourly rate for their services.

Exclusive or Non-Exclusive: The agreement can be exclusive, meaning the buyer agrees to work only with the broker during the term of the contract, or non-exclusive, allowing the buyer to work with multiple brokers.

Termination Clause: This clause outlines the conditions under which either party can terminate the agreement before its expiration date, including any notice requirements or penalties.

The beauty of it is that it’s negotiable. Both parties may negotiate up or down.

If you don’t agree on terms or compensation amount, you can always shop for other agents. Be sure to consider their expertise in the type of properties you are looking for, their experience and success in obtaining a winning offer for their buyers, shop their fees, then make a decision on what works for you and your budget in helping you achieve your real estate goals.

Proof of funds

The broker/agent agreement requires the buyer to provide proof of funds that they have the money to pay for both the targeted property and their buyer’s agent’s compensation in rendering professional services.

In the buyer/broker representation agreement, it is the buyer who is responsible for paying for the real estate compensation owed to the buyer’s agent they hired to work for them.

However, a buyer might avoid paying the fee of the buyer’s agent and ask the seller instead to pay for this buyer’s obligation.

Here are several strategies a buyer can use to avoid paying the buyer’s agent’s compensation directly:

Request Seller Payment in the Offer:

Buyers can ask their buyer’s agent to include a clause in the offer requesting that the seller pays some or all of the buyer’s agent’s fee. This is reasonable and acceptable practice and may be negotiated as part of the overall purchase agreement.

Ask for Upfront Concessions:

Buyers can also request an upfront concession from the seller in their offer. This concession can be used to cover various costs, including closing costs, repairs, and the buyer’s agent’s compensation.

Do note, however, that home sellers are not under any obligation to agree to pay buyer’s agent’s compensation.

Negotiating Seller-Paid Real Estate Agent Commissions:

Although the new rules prohibit advertising the compensation on the MLS, the seller can still agree to pay all real estate commissions for both the listing agent and the buyer’s agent. This can be negotiated during the offer and agreement stage.

By understanding these strategies and negotiating effectively, buyers can potentially have the seller cover some, or all of the buyer’s agent’s compensation, thus reducing their out-of-pocket expenses, which is helpful for buyers with limited funds using a VA, FHA, or Conventional mortgages.

With the NAR changes, cash buyers have an advantage and greater flexibility to pay their buyer’s agent’s compensation directly and not lump this amount in their purchase offer for a stronger position.

It’s essential to work closely with a knowledgeable buyer’s agent who can guide you through these negotiations and ensure all agreements are clearly documented.

Sellers might now offer concessions to make their property more appealing.

This could include covering closing costs, repairs, or even contributing towards the buyer’s agent’s commission or paying for all of it.

We expect that buyers will be incorporating the buyer’s agent compensation in their offer so sellers should have this discussion upfront with their listing agents so they are not surprised by it.

Sellers should ask for an estimated net proceeds sheet from their agent to have a clear idea of how much they will pocket after selling costs before listing their property for sale. They should also request updated net sheets to compare the bottom line when multiple offers are received.

In pricing their properties correctly, sellers and their listing agents must carefully study comparative market analysis (CMA) that take into consideration properties with concessions that may or may not include buyer’s agent’s compensation.

Absolutely. Here are some key changes:

Offers of Compensation

New MLS rule prohibit offers of real estate commission on the MLS. Although offers of compensation may not be communicated via an MLS, they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals.

Written Buyer Representation Agreements

This new rule requires MLS participants working with buyers to enter into written agreements with their buyers before in-person tours or virtual tours of a homes.

You can always negotiate for a lower real estate agent commission and favorable terms, just like a buyer can always offer a lower purchase price for a property – whether the other party (agent or seller) agrees to it or not is the question.

You may have a result wherein a seller or the agent does not accept your offer, counteroffers, etc. If you cannot reach an agreement, in this scenario, you would have to look for another home or another agent that is a better match for the type of home, or services/ costs that you are expecting.

Luckily, here in our California real estate market, there has always been plenty of choices in real estate brokerages from full-service brokerages to discount brokerages offering a gamut of commission rates.

You can research online to see which brokerages and agent is the perfect fit for the budget and type of services that you are looking for.

There should be plenty of competition with brokers/ agents providing various levels of services, expertise, reputation, and experience. Their fees will also vary from the low to upper-range.

For zero costs, some people may also choose to sell or buy without a real estate agent. Consumers get to choose what they think is best for them. Some will choose the For Sale By Owner (FSBO) and do everything themselves as they have done before.

For those who have a need to work with an agent, for example out-of-area buyers/ sellers, experienced and professional Realtors® have immense value in representing clients during a transaction. These agents bring a wealth of first-hand knowledge and experience that serves as a critical defense in safeguarding the generational wealth that their clients have built through decades of hard work.

Now more than ever, for buyers who recognize the need to use an agent, it behooves the buyer to research their agent diligently and hire the one that ultimately has the knowledge, experience, positive track record and expertise to help get them to the finish line.

There is much more to buying a house than finding a property online or even writing an offer.

Having an agent help a buyer navigate due diligence after a home is in contract, guide them and be available to answer questions to help them come up with informed decisions are probably the key benefits of hiring a professional real estate agent who are truly experienced and knowledgeable.

These high quality and experienced agents with excellent reputation may not come cheap but may be worth it for select individuals who need that confidence that with that real estate agent’s help, they will achieve their real estate goal and ultimately even save them time, money, avoid much stress, or worry. In this case, it pays to have someone on their side.