What the NAR Settlement Means for Buyers and Sellers
What Was It?
The NAR settlement addresses an antitrust lawsuit suggesting that certain industry practices have kept commission rates higher than necessary. The proposed settlement aims to make commission rates more transparent and allow sellers more flexibility in negotiating buyer-side commission rates.
How Does It Affect You?
By August 17th, nationwide, and sooner in some markets, every buyer must sign a buyer representation agreement before touring a home. Additionally, everyone attending an open house must sign a non-agency disclosure if they are not accompanied by their agent. More on this below.
Previously, the listing agent would take a commission and offer a portion to the agent who brought a willing and able buyer to purchase the property, known as a cooperating broker agreement. This was communicated via the MLS. Now, when signing a listing agreement, the seller only agrees to the listing agent’s commission rather than the total commission.
Why Do I Need a Representation Agreement?
A signed buyer representation agreement ensures that you, as the buyer, understand who your agent is, their responsibilities, and how they will be compensated. This agreement specifies the agent’s payment terms, the homes/areas it applies to, and whether it is exclusive or non-exclusive.
Do I Need an Agent?
No, you are not required to have an agent, similar to representing yourself in court. However, hiring a professional can help you navigate the negotiation process and provide the resources needed for a thorough property inspection.
Why Do I Have to Sign In at an Open House?
This requirement stems from California law regarding implied agency relationships. A non-agency disclosure informs you that:
- The agent does not represent you.
- The agent is there for the seller’s benefit.
- The agent may provide your feedback to the seller.
- If you decide to make an offer, you will be informed if the agent is working on behalf of both you and the seller or solely the seller.
- If you want the open house agent to represent you, you will need to sign a buyer representation agreement.
These disclosures allow the seller’s agent to discuss the property and community features on behalf of the seller while enabling you to tour the home without committing to an agent beforehand. If you do not sign in, the agent may choose not to allow you to view the home or answer any questions about the property or community.
How Does a Buyer Pay for Their Representation?
A buyer can pay for their broker themselves, ask the seller to cover it, or negotiate a combination of the two. Just like any other closing cost, the buyer can request that the seller pay all or part of their closing costs. The payment is agreed upon during escrow, whether it’s "out of pocket" by the buyer or covered by the seller.
Non-Exclusive vs. Exclusive Agreements
A non-exclusive agreement allows you to shop around for a realtor, while an exclusive agreement indicates that you’ve chosen a specific agent to work with. However, nuances exist with non-exclusive agreements that buyers should be aware of. For instance, if you have a non-exclusive agreement with two agents and agent #1 shows you a home or does research for you, but you purchase the home with agent #2, you may still owe agent #1 the agreed-upon commission due to what is known as "procuring cause." Essentially, whenever you view a property with an agent, they may have an exclusive claim to represent you for that property for the duration of the agreement.
As a Seller, Do I Still Have to Pay the Buyer Broker Commission?
Yes and no. Sellers have never been required to pay the buyer’s broker commission, although it has been standard practice to do so. The listing agent typically offers a portion of their commission to the buyer’s broker through a cooperating broker agreement, which increases the total commission. This practice is changing. Going forward, listing agents in California cannot offer part of their commission via the MLS. Buyers will now negotiate directly with their agent regarding compensation, and when making an offer, they may request that the seller cover the commission from the sale’s net proceeds.
Sellers should be prepared to consider covering this closing cost when listing their home. However, instead of locking in an amount regardless of the offer, sellers now have more control over their net proceeds. For example, a seller might be more inclined to accept a full-price offer with a request to cover the commission than an offer that is 10% below the list price with no commission request. In this case, the seller’s net proceeds would be greater even after paying the buyer’s commission.
Want to Know More?
At The Dineen Shanstrom Group, we’ve been diligently preparing for the changes in the real estate market and are fully equipped to navigate the new rules of buying and selling in the Coachella Valley. This blog offers a general overview of the upcoming changes, but the impact on your specific situation may differ. As these regulations come into effect, I’m here to be your trusted resource, helping you understand how these changes apply to your individual needs. Stay tuned for more updates, and don’t hesitate to reach out with any questions or concerns. You can contact me by phone, text, or email to learn more.
