The recent settlement by the National Association of REALTORS® (NAR®) has brought significant shifts to the real estate industry, transforming how homes are bought and sold. This settlement is designed to promote greater transparency and fairness for home buyers. To navigate this evolving landscape confidently, it’s crucial for both Buyers and Sellers to understand these changes and adopt best practices. While coverage of these changes has provided a general overview, it hasn’t fully explained their implications for home buyers. The aim here is to clarify these changes and offer practical advice to help you successfully purchase a home in this new era of real estate.
How the Changes Came to Be
Earlier this year, NAR® reached a settlement in response to lawsuits accusing its policies on buyer broker compensation of being anti-competitive. The lawsuits highlighted the practice of mandating that sellers offer broker compensation via the Multiple Listing Service (MLS), which was claimed to contribute to inflated home prices. While NAR® has not admitted to any wrongdoing, the organization has agreed to implement significant changes to its practices. These updates are important for all home buyers to understand.
Key Changes to the Home-Buying Process
- Written Agreements: Home buyers are now required to sign a written agreement with their agent before viewing properties. This agreement will outline the agent’s compensation terms clearly, ensuring transparency and mutual understanding between the buyer and the agent.
- Compensation Disclosure: The written agreement must specify the exact amount or rate of compensation the agent will receive for their services. This ensures that compensation terms are defined and not left vague or variable.
- Prohibition of MLS Compensation Offers: Compensation offers can no longer be made through the MLS. This change aims to prevent potential conflicts of interest by eliminating the practice of sellers indirectly paying buyer brokers. However, sellers may still choose to offer compensation to attract buyers, with such offers being advertised through the listing agent and their brokerage, rather than the MLS.
- Negotiability of Fees: While agent fees have always been negotiable, the separation of buyer broker compensation from the MLS now places the responsibility on buyers and their agents to negotiate and agree on a fee directly. Buyers should discuss compensation details with their agent to understand what services will be provided in exchange for the agreed fee.
What Future Home Buyers Should Know
The new rule changes aim to give buyers a clearer understanding of the compensation their agents will receive, which should help them make more informed decisions. Since buyer broker compensation is now negotiated separately, buyers might have more leverage to negotiate fees with their real estate agents. This means there is potential to save money, depending on the situation. Buyers can also use the compensation as a negotiation tool with sellers to help offset the cost of their agent’s fees.
Another significant change is the requirement for a written agreement between the buyer and their agent before touring homes. This agreement will outline the services the agent will provide and the terms of compensation.
Additionally, the MLS will no longer display compensation offers, so you will need to negotiate and agree on the buyer broker compensation directly with your agent. However, brokerages may still publicly advertise compensation offers for their own listings. For example, our brokerage will display available compensation offers on our websites for our own listings only if authorized by the seller.
Best Practices for Home Buyers
- Ask Questions: It’s crucial to understand how the new procedures work to make informed decisions. Inquire with your agent about the services they offer, what they will do for the agreed-upon fee, and any other aspects of the transaction process.
- Engage: Since broker fees are now negotiable, discuss these fees with your agent upfront to avoid surprises later in the process.
- Review Agreements Carefully: Examine all documents related to the real estate transaction thoroughly to ensure they accurately reflect the terms you’ve negotiated with your agent.
- Stay Informed: Stay updated on changes in real estate practices and industry trends. Being well-informed will enhance your home-buying experience and help you ask relevant questions of your agent.
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