NEW RULES FOR BUYING AND SELLING REAL ESTATE AFTER NAR SETTLEMENT
NAR SETTLEMENT
In March 2024, the National Association of Realtors (NAR) agreed to settlement terms that will significantly modify home buying and selling practices for many consumers nationwide, including in the Greater Palm Springs Area. This post summarizes the two key changes as a result of the settlement that will go into effect starting August 17, 2024.
How Realtors Traditionally Get Paid:
Most Realtors work on a commission basis, with the commission being a percentage of the final sale price. In California real estate commissions have always been negotiable. The listing agent negotiates a total commission to be paid at the close of escrow. Of that total commission, the listing agent agrees to share either a percentage or specified amount with the buyer’s broker. The amount a seller agrees to offer a buyer’s agent has been visible to other agents in our Multiple Listing Service (MLS)—important to note because this is one of the changes. The final payment for services happens at closing and are reflected as part of the total sales price.
In California, buyers wishing to be represented sign a buyer agreement with an agent/brokerage detailing services and fees. Through the traditional model, most buyer’s agents receive payment for services via the commission split described above, if the seller has agreed. If a seller does not agree to a concession for the buyer’s agent fees, the buyer would be obligated to pay the amount negotiated with their agent.
TWO MAJOR CHANGES AFFECTING SELLERS AND BUYERS
FIRST CHANGE: SELLER OFFERS OF COMPENSATION
Starting August 17, 2024, NAR’s new rule will prohibit offers of compensation to buyers’ agents from being listed on the MLS. However, sellers can still offer concessions, like covering buyer closing costs, on the MLS. Compensation offers can still be negotiated directly between buyers and real estate professionals outside of the MLS.
Simplified...
Commission paid to sellers’ agents and offers of compensation to buyers’ agents will remain negotiable, but the offers of compensation to buyers’ agents will no longer be allowed on the MLS.
Sellers can still make offers of compensation to the buyer broker, but starting on August 17, those offers cannot be displayed on the MLS, and MLS data or feeds cannot be used to facilitate a third party doing so. Listing brokerages will be permitted to display offers of compensation for their own listings outside of the MLS (e.g., on their own brokerage website, in mailings, email marketing campaigns, etc.), but they cannot display offers of compensation made on other brokerage’s listings.
As a Seller Should You Make an Offer of Compensation?
I believe sellers should still offer compensation to the buyers agent. Offering compensation to the buyer broker has been proven to make a home more attractive to potential buyers. Additionally, a buyer represented by a professional makes for a smoother transaction overall.
What this means: While seller’s brokers are prohibited from publishing compensation on the MLS, it is generally beneficial for a seller to offer compensation to a cooperating broker representing a buyer. In some instances it may be beneficial to make an offer of specific compensation by authorized means to the buyer broker and in other instances it may be beneficial to provide a statement that the seller will consider a concession to the buyer broker as part of an offer.
SECOND CHANGE: BUYER REPRESENTATION AGREEMENTS
As of August 17th, prior to touring a property with an agent or a virtual tour, a buyer must first enter into a written agreement with that agent or brokerage. While buyer representation agreements have been common in California, requiring a signed contract before touring a home (either in-person or virtually) will be new. Buyers will not need a written agreement when speaking to an agent at an open house or when asking them about their services.
What if the seller of a property a buyer is interested in is not offering a commission to the buyer’s broker?
The buyer representation agreement will set forth what happens in this circumstance. Generally, the buyer can make an offer subject to the seller agreeing to pay the negotiated amount of the buyer’s broker commission, the parties can negotiate for the seller to pay a portion of the buyer’s brokerage commission, the listing agent could pay part, or the buyer could pay the full commission.
What you need to know: August 17th, agents must enter into an agreement with a buyer before showing a home, specifying the terms of the engagement, including how the agent will be paid.
California Lifestyle Realty
At California Lifestyle Realty, we have been busy preparing for these changes in how real estate is sold. This blog is an overview about the new rules, but each transaction with buyers and sellers may vary. We are staying on top of these changes as they unfold and we will be prepared to guide you as we navigate these changes together!
Photo by Chris Miller, One Point Media Group
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