If you’ve been thinking about buying a home, you’ve likely heard about the recent National Association of Realtors settlement concerning commissions. This landmark decision is reshaping the real estate landscape, particularly how commissions are handled and what buyers should expect during their home-buying journey. Let’s dive into what this settlement means for you and how it could affect your next big purchase.
What’s the NAR Settlement All About?
To kick things off, the National Association of Realtors (NAR) found itself in hot water over alleged antitrust violations related to commission structures. The 2024 settlement came after a series of lawsuits that challenged how real estate commissions are set, particularly the practice of sellers paying the buyer’s agent commission. While the settlement aimed to bring more transparency and fairness to the process, it led to even more misunderstanding among buyers. Let’s clear it up.
How Commissions Are Changing
One of the most significant changes from the settlement is how commissions are handled. Traditionally, the seller would pay the listing brokerage, who would then pay both the listing agent’s and the buyer’s agent’s commissions. This usually totaled around 5-6% of the home’s sale price. This was an industry standard for Realtors who did not work for a discount or flat-fee brokerage. Home sellers were never required to pay a specific percentage and could negotiate a percentage suitable to them. If the Realtor didn’t feel they would be compensated enough for their work or that not offering compensation to the buyer’s agent would hurt the sale, they could choose not to take the listing.
With the new rules, the practice of offering compensation to a buyer’s agent is under scrutiny, and buyers might find themselves directly negotiating or even paying their agent’s commission. This settlement’s goal hoped to create:
- Greater Transparency: Realtors in North Carolina have had a Buyer Agency Agreement for years. This document, paired with the Working with Real Estate Agents disclosure, outlines the responsibilities of the brokerage, agent, and client, including the length of the working relationship, where the client will be house shopping, and the compensation to be paid. However, real estate commissions and associations in other states have their own policies and forms. So, if you’re buying outside of North Carolina, you’ll now see a clearer breakdown of how commissions are being allocated. This transparency is designed to empower buyers, giving them a better understanding of what they’re paying for and why.
- Negotiation Opportunities: While commissions have always been negotiable, the settlement is making that clearer to home sellers. More sellers across the nation are choosing to not offer buyer agent compensation. That means the buyer will be fully responsible for paying the brokerage, who then pays the buyer agent. Each buyer will have to negotiate compensation with their agent, whether that’s a percentage of the sale or a flat fee, prior to seeing properties. If the seller of the home they want to make an offer on is offering a buyer agent compensation that doesn’t align with the agreed-upon amount, the compensation can be negotiated again.
Home Buyers Walking Through a Home
Impact on Buyer Representation
The settlement also brings changes to how buyer agents represent their clients. Here’s what you need to know:
- Buyer Agency Agreements: As mentioned above, Realtors in North Carolina have long had a Buyer Agency Agreement outlining expectations and compensation between the brokerage and client. However, when this was presented depended on the agent. While it’s long been encouraged to have this signed by a buyer prior to seeing homes, it was only required to be signed prior to making an offer. Many agents would choose to show the house or lot first before having anything signed. They felt this was an opportunity for both parties to get a feel of what it would be like working together before entering into anything resembling a contract. This is now changing…Buyers across the country can expect to sign a detailed buyer agency agreement prior to viewing any properties. This contract will outline exactly what your agent will do for you and what their compensation will be. This could be a double-edged sword—while it gives you clarity, it also means you’re more locked into specific terms. To alleviate some of the pressures of working with someone brand new, your agent may fill out the Buyer Agency Agreement for just one property or a short amount of time, like a day or week. If you decide you want to continue working with them, the agreement can be amended. This will require more paperwork, but you can feel assured you have the power to choose who’s representing you in one of the largest investments of your life.
- Increased Responsibility on Buyers: With these changes, the onus is increasingly on you, the buyer, to understand and manage your relationship with your agent. Negotiating a lower commission may mean you take on more risks and responsibilities. You must know what your agent will be handling and what will be your responsibility because not all agents provide the same services for the same compensation. Communication is incredibly important.
Buyers Talking to the Realtor
What This Means for First-Time Buyers
First-time home buyers, in particular, need to be aware of how the NAR settlement could affect their purchasing experience. Here are a few key takeaways:
- Budgeting for Commissions: Since buyers might end up paying their brokerage (who compensates their agent) directly, it’s crucial to factor this into your budget. That dream home could come with an added cost you weren’t initially expecting.
- Educating Yourself: Knowledge is power. Take the time to understand the ins and outs of real estate commissions, and don’t hesitate to ask your agent pointed questions about their fees and services.
- Shopping Around for Agents: With more responsibility placed on the buyer, it’s wise to shop around for agents. Don’t just go with the first one you meet—compare commission rates, services, and their approach to the market. Just know you won’t be able to view a home until you sign a Buyer Agency Agreement.
The Bigger Picture: Market Implications
Beyond the individual impact on home buyers, the NAR settlement is likely to have broader effects on the real estate market:
- Price Adjustments: With changes in how commissions are paid, some buyers might need to adjust their budgets to offset paying for an agent. This could create a ripple effect across the market, influencing overall home prices. However, there is no guarantee that this will cause home prices to drop – especially to the degree many wish. Supply and demand still influence home prices.
- Agent Competition: Real estate agents will need to be more competitive, not just in terms of pricing but also in the quality of service they provide. This could lead to better experiences for buyers, as agents work harder to earn your business.
Final Thoughts
The NAR settlement is encouraging more transparency and opportunities for negotiation across the United States. It also requires buyers to be more informed and proactive in their home-buying journey. However, the very basis of the real estate process is not changing. As a real estate team in North Carolina, we’ve long had the discussion about compensation and have outlined our working relationship in the Buyer Agency Agreement and Working with Real Estate Agents disclosure. If you have any questions about buying a home, we are happy to discuss your options and the services we offer. Reach out anytime.
FAQs
1. Will I definitely have to pay my agent’s commission now?
Not necessarily. While the settlement encourages transparency and negotiation, it doesn’t mandate who pays the commission. This will be something you discuss with your agent and negotiate based on your circumstances. Many home sellers are still offering a buyer agent compensation as an incentive for purchasing their home, it just can’t be offered upfront in the MLS. Compensation must be negotiated.
2. How will this settlement affect home prices?
It’s still too early to tell exactly, but there could be some adjustments. Sellers might price their homes slightly lower if they choose to not compensate a buyer’s agent. Others may keep their prices at current levels because that’s where market demand has pushed them. Buyers may start making lower offers on homes where buyer agent compensation isn’t offered and that could push home prices lower. We just won’t know until it happens.
3. Should I look for a discount agent?
Maybe, but remember that you often get what you pay for. It’s essential to balance cost with the quality of service. If you haven’t completed many real estate transactions, paying a bit more for an experienced agent can save you money in the long run.
4. What should I look for in a buyer agency agreement?
Look for clear terms about what services your agent will provide, the commission rate, and any conditions that might affect your relationship, such as the duration of the agreement or exclusivity clauses.
