By Roy J. Jimenez, Esq.

As of August 17, 2024, new rules are reshaping how real estate agents are paid, fundamentally altering the home buying and selling process in the U.S.

The National Association of Realtors (NAR) recently settled a series of class-action lawsuits that alleged its compensation practices violated antitrust laws. This settlement not only requires NAR to pay over $400 million in damages but also mandates sweeping changes to how agents are compensated, marking a significant shift in the real estate industry.

Key Changes Now in Effect:

1. Increased Transparency in Buyer Representation Agreements: One of the significant changes is the push for greater transparency and clearer agreements between buyers and their agents. While some states have long required buyers to sign representation agreements before touring homes, this practice is now emphasized more broadly. However, the NAR settlement itself does not impose a nationwide requirement for all buyers to sign such agreements. The exact application will vary by state and market, depending on existing laws and local MLS policies.
2. Flexibility in Seller-Paid Buyer Agent Fees: Previously, it was customary for sellers to cover both their own agent’s commission and the buyer’s agent’s fee, with these fees often split evenly between the two. As of August 17, the requirement for listing brokers to advertise buyer agent compensation in MLS listings is no longer mandated. This change allows for more flexibility and gives sellers the option to negotiate buyer agent fees independently of MLS disclosures. Sellers can still offer to cover some or all of the buyer’s agent’s fee, but this will now be determined on a case-by-case basis, often through separate negotiations.

What Buyers Can Expect:

For buyers, the most noticeable change is the emphasis on entering into a representation agreement before being shown any properties. While this requirement was already in place in some states, it is now a more common practice nationwide, although not uniformly mandated by NAR.

These agreements will outline the terms of compensation and the services provided by the agent, giving buyers more clarity upfront. With the shift in how agents are compensated, buyers may encounter new pricing structures, including flat fees, hourly rates, or a la carte services that align with their specific needs. In response, some buyers may choose to work directly with listing agents or forego representation altogether to avoid additional costs.

What Sellers Should Anticipate:

Sellers will need to adapt to a new landscape of negotiations. Without the traditional expectation that they automatically cover buyer agent fees, sellers may see offers reflecting buyers’ additional out-of-pocket costs. In markets where buyer agent fees are not offered by sellers, listing agents may find it more challenging to attract showings, as some buyer agents might prioritize properties where their compensation is clearly outlined.

To address this, sellers and their agents may explore alternative ways to communicate potential buyer agent compensation outside the MLS, such as through direct communication or signage at the property. The shift introduces more complexity into the selling process, requiring strategic consideration of how commissions are handled.

Broader Implications for the Industry:

The NAR settlement is likely to spur additional changes in how real estate transactions are financed and conducted. For instance, the Department of Veterans Affairs has adjusted its policies to allow VA borrowers to pay certain agent commissions, reflecting a broader regulatory trend. Other lending solutions that allow buyers to finance agent commissions could become more common.

The industry may also experience a shakeup in the number of active agents, particularly among newer agents who struggle to demonstrate their value in negotiations. The NAR’s membership surged during the pandemic, but the changing compensation structure could challenge less-experienced agents who are now responsible for negotiating their own fees directly with clients.

Conclusion:

The NAR settlement introduces significant changes that are reshaping the real estate industry. Buyers, sellers, and agents alike must adapt to this new framework, where transparency, negotiation, and flexibility become key components of every transaction. As the dust settles, those who can adjust quickly and demonstrate clear value to their clients will emerge as winners in this transformed market.

For more information about the NAR lawsuit, the changes to agent compensation, or how this may impact your real estate transactions, contact Roy Jimenez, Esq. at [email protected]. Mr. Jimenez and the team at TLD Law can provide expert guidance on navigating these industry shifts and help you prepare for what’s ahead.