Client: National Association of Realtors (NAR)
Source: Newsweek
Homebuyers are set to see some major changes in two weeks, as the settlement rules for the National Association of Realtors are scheduled to go into effect beginning on August 17.
The settlement, which was originally reached on March 15, got rid of the standard 6 percent commission on home purchases. The NAR also agreed to pay $418 million in damages and create new rules for broker compensation.
The settlement followed several cases alleging that the group, which has more than 1.5 million members, lacked transparency on commission rates and ended up leaving homebuyers with excessively high fees.
“Prior to and throughout the Settlement litigation, NAR has remained committed to protecting consumer choice and transparency, and to making homeownership accessible for all Americans,” Nykia Wright, NAR’s interim CEO, said in a statement. “With these new resources, realtors are even better equipped to inform and empower consumers and continue to demonstrate the value they bring to real estate transactions.”
For homebuyers, several things may look different during their buying process.
“It’s like we’re shaking up a snow globe,” Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek. “Everything’s going to look different when it settles.”
For one, buyers would sign a written agreement with real estate agents before even touring a home.
The buyer agreement outlines the specific amount of compensation the real estate agent is expected to receive, with instructions—whether it’s a flat fee, percentage or hourly rate. It would no longer be acceptable to have a buyer broker compensation based on whatever the seller wants to offer.
The agent would also be prohibited from getting compensation for brokerage services from any source exceeding the amount agreed upon with the buyer. There would also be a clear statement that broker fees and commissions are negotiable and not decided by the law, according to the NAR.
These written agreements apply to both in-person and virtual home tours in hopes of providing greater transparency on the home-buying costs.
“It’s a settlement that could in theory benefit buyers in terms of transparency, but it also adds additional tasks to the home-buying process,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “A new buyer agreement will disclose all the fees associated with an agent and the compensation they and other entities will receive if the house is purchased.”
Under this new agreement, homebuyers can still accept offers from the seller to pay closing costs, but the amounts paid to the broker must be specified.
In the former real estate business model, sellers paid their broker and the buyer’s broker. Many have criticized these fees as the housing market faces an affordability crisis, with the broker fees only exacerbating the problem.
Some Realtors have pushed back on the settlement rules, which could lower real estate commissions by 25 to 30 percent, recent estimates showed.
“The new NAR settlement will be a shock to the system for some time for both buyers and real estate professionals, but ultimately, I believe it will create a better experience,” Ralph DiBugnara, a real estate expert and the president of Home Qualified, told Newsweek.
“The better agents who provide a better experience for their customers will still continue to be prominent. The agents who aren’t providing enough service will lose clients,” he added.
“Overall, by compensation being linked to buyers now, it ultimately provides them the opportunity to hire buying experts and have a better experience.”
Ryan said that as a result of the settlement’s rules, some new creative business models could emerge, like flat-fee services and pay-by-the-hour agents. However, it could also cause higher costs for homebuyers in different ways, he added.
“Sometimes when we try to lower costs in one area, they pop up somewhere else,” Ryan said. “It’s like squeezing a balloon. Sellers might just pocket the savings instead of lowering home prices.”
Choosing your real estate agent could also become a different experience.
“It’s going to be less about who’s offering the standard package and more about who’s providing the best value,” Ryan said. “Don’t just look at the price tag, look at what you’re getting for your money.”