Big Changes Ahead! NAR Commission Lawsuit Settlement Explained

I'm sure you've all heard by now about the National Association of Realtors commission lawsuit and that a settlement has been reached. The changes from that settlement take effect on August 17th next month. More details on the lawsuit and the settlement are in the post or in the email below. But I wanted to share some key points and some key takeaways.

There really are two big changes coming down the pipe next month that will subsequently funnel down into other related changes and some new documents, of course. The first big change is that commissions will no longer be listed on the multiple listing service or the MLS. Currently, Buyer's Agent Compensation is posted on the MLS and other syndicated real estate websites and this will be going away and the buyer's agent compensation will not be posted. The practice of putting buyer's agent commission percentage on the MLS has led many to believe that that number is fixed.

Unfortunately, there are agents that have not done an adequate job explaining that commissions are negotiable, which is a huge part of why we're here in the first place. So the goal of this is that it will encourage agents to have more in-depth conversations with their clients around compensation. That's promoting greater transparency across our industry, which is a good thing. The second big change is that buyers will now be required to sign buyer agency agreements to ensure that they fully understand their buyer broker relationship. The obligations between the broker, a client and how their buyer's agent is going to be compensated. So the buyer broker agreement has been in existence for quite some time, and some agents and brokerages have been using this form for a long time already. However, after August 17, the form will look different and it will be mandated, meaning it's not going to be up to the agent or the buyer to decide whether or not they want to use this agreement.

A couple of common misconceptions that I have seen continue to surface throughout the lawsuit. And even now that I really want to make clear, are things like realtors have fixed commissions, obviously, and that sellers no longer have to pay buyer's agents and that they're going to be saving a lot of money. In reality, commissions have never been fixed and sellers have never been required to compensate buyers agents or any agent for that matter. In fact, buyers and sellers have always had the option to conduct transactions without an agent. Let's take for sale by owner, for example. That's always been a thing for as long as I can remember. And that's not going away. If a buyer or seller feels competent and confident enough to represent themselves in a purchase or sale, they can.

So how do I see this all playing out? Well, I think ultimately sellers are going to continue to pay for or largely contribute to the buyer's agent compensation for several reasons. But our conversations and our processes surrounding compensation are going to look different. In the current market, and for quite some time, at least in this area, buyers have taken on a huge amount of costs from sky high home prices, bidding wars, rising interest rates and a slew of existing closing costs. And that's all just to get their foot in the door. So adding on another substantial cost to buyers is going to further narrow the buyer pool, which isn't good for anybody.

From a seller's perspective. The main objective is almost always to net the most amount of money from the sale of their home, which means casting the widest net to the pool of ready, willing and able buyers. Right? So for that reason and some other important ones, I believe sellers will continue placing a high value on compensating buyer's agents due to what it brings to the table for their bottom line and successfully meeting their transactional and financial objectives from the sale of their home.

Looking ahead, the new and the modified forms are set to be released by the State on July 24th. Once the forms are in and reviewed, I will be contacting each one of my clients to discuss them in the process in more detail and of course, answer any questions. These changes and the possible outcomes might seem overwhelming, and it's because it is overwhelming. But we've navigated major industry shifts before. The last one being the pandemic, which created a lot of temporary uncertainty for the consumers, agents and really the industry as a whole. And it required a complete overhaul of policy procedures and documents and really changed how we did business for a time.

We overcame that and we will do it again here. Real estate is all about negotiations and we will adjust to this successfully. I'm committed to being at the forefront of this topic for my clients and I will update you as things progress. So thank you for watching and let's navigate this market together. As always, I'm here to be a transparent resource, so feel free to reach out with any questions.