You may have heard about the commission lawsuit settlement earlier this year. Changes are coming into effect in August and here is a breakdown of what that means for home buyers and sellers.
Broker Compensation and The NAR Settlement
Real estate commissions have always been negotiable.
In the past, sellers signed a listing agreement with brokers, and in the listing agreement compensation was agreed upon. The sellers would often pay the listing broker a percentage commission, and the listing broker would offer a portion of this percentage to the buyer’s broker. The portion paid to the buyer’s broker was agreed to in the listing agreement with the seller, and this all happened before the property was put on the market.
While in the past the percentage that the listing broker was offering to the buyer broker was listed in MLS, this is going to change moving forward. Starting on August 13th 2024, as a direct result of the lawsuit, MLS’s around the country will not be permitted to display offers of compensation.
The buyer broker will now be responsible for contacting the listing broker to find out if a commission is being offered, and if so what the details are. The NAR settlement does not make anything standard, it leaves it up to the consumers and the brokers to negotiate the commissions.
While this concerns the compensation of real estate brokers, this has direct impact on you as a buyer or seller. Here is how we see the market shifting in the coming months:
- Buyer representation agreements are now strictly required for an agent to show any properties. This includes virtual showings but not open houses. These representation agreements will define what happens if the seller pays for BOTH, PART, or NONE of the buyer broker commission.
- Buyer representation agreements are not required when a listing agent shows their own listing to an unrepresented buyer. If that buyer wishes to remain unrepresented, the listing agent must have the buyer sign the IABS and the unrepresented buyer disclosure.
- A seller has the option to pay both the listing broker and buyer broker commission, only the listing broker commission or the listing broker commission and part of the buyer broker commission. In theory that means that the cost of selling could be lower. However, it could also mean that less buyer agents show your property or it could also mean that buyers will factor in the cost for their agent into the price they are offering you as a seller.
- On the contrary, opting to pay BOTH or PART of the commissions of the listing broker and the buyer broker may bring more buyers and offers more quickly. Buyers have a lot of expenses including down payment, closing costs, appraisal fees, and inspection fees. Paying their broker may be an added expense they can't afford. Market conditions will also be a factor. In a buyer’s market, the seller may be more willing to pay both commissions in order to sell the house. In a seller’s market, they may be more likely to pay their broker only.
- When the seller agrees to pay their broker, and PART of the commission of the buyer broker, the exact details will depend on the details of the buyer representation agreement and what was agreed to when the offer was made and accepted (it cannot be negotiated after an offer has been accepted).
- If the seller opts to pay only the commission of their listing broker, the buyer would be responsible for paying their broker the commission they agree to. Since the buyer and buyer’s broker are now required to have a representation agreement in place before starting to look at properties, payment options for different scenarios will be negotiated and agreed upon upfront.
- The seller may still decide to pay NONE of the buyer broker commission. Again, the buyer and buyer’s broker will have already agreed on how they will proceed based on the details of the representation agreement.
- The MLS will have a new field that is non-binding called “Seller Contributions”. It is a searchable field in MLS. Listing brokers are permitted to advertise Seller Contributions on their websites and social media.
- The amount displayed in the seller contribution field could be a different number than is in the listing agreement. Meaning sellers are testing the waters. The amount listed in seller contributions may be zero and cannot be designated as “only commissions”.
- Seller contributions will not count toward the total maximum allowable lending cap on the amount the seller can contribute to the buyer's closing costs. Ask your lender for the limits on that particular loan product. Commissions may not be rolled into the loan.
- The VA has also agreed that the Seller Contributions amount may be added to the allowable amount without affecting the loan.
- The buyer broker may not be paid more than the amount listed in the representation agreement. An amendment must be signed to make the amounts match.
Brokers are testing out the water and it will be a case-by-case scenario moving forward. It is important to understand the different scenarios that can occur and what this means to you financially but also in terms of access to buyers / sellers.
If you have any questions on this, please reach out to us and we are happy to walk you through these changes. Alternatively you can also read up more on abor.com/rightnow .
