Real Estate JUST Changed FOREVER: Realtor Commission Settlement
On Friday, March 15th, 2024, the real estate world changed as we knew it. On that day, the National Association of Realtors announced the proposed $400+ million settlement. The internet blew up. People went crazy, and real estate, as we know it, is completely different.
In today’s article, I want to cover what we know about the recent NAR settlement proposal.
Before we proceed, here’s something to note: What we will discuss here is a proposed settlement. Nothing is set in stone yet, as this all still needs court approval. Additionally, these proposed changes will take effect in mid-July at the earliest. It could be later than that, but nevertheless, it is likely coming in the future.
There are two major changes to the way real estate business is conduced. Now that we’ve got that all out of the way, let’s dive into this proposed settlement.
1. Buyer Representation Agreements Required
In this proposed settlement, the first of two major changes is that an agent who works with a buyer must have in place a Buyer Broker agreement before performing any duties like opening a door or reviewing comps. This agreement should contain the following elements:
- The agent must disclose the amount or rate of compensation they will receive once the transaction closes.
- The amount of compensation must be set in the agreement, such as a percentage or a dollar amount, and cannot be open-ended.
- Agents cannot receive any compensation for brokerage services from any source more than the amount or rate agreed to in the buyer representation agreement.
As a note, there are states that have been practicing real estate this way for years so this isn’t a new concept. What is new is that it’s going to be a policy across all the NAR associated agents nation wide.
2. Offers of Cooperative Compensation Cannot be Made on the MLS
1." Agents cannot make offers of cooperative compensation on the MLS. MLSs must eliminate all broker compensation fields on the MLS and prohibit the sharing of offers of cooperative compensation in any other MLS field. NAR (and any MLSs released under the settlement) also cannot create or support any non-MLS mechanism (such as an internet aggregator's website) for sellers or listing agents to make offers of cooperative compensation to buyer agents."
The second big change is also fascinating. The settlement proposes that any MLS associated with the National Association of Realtors may no longer display an offer of compensation to a buyer in the MLS anywhere at all.
For context, there is currently a required field that states what you’re offering. Even if it’s zero, it’s a required field in the MLS. So, with the proposed $400+ million settlement, not only will the requirement to input something go away, but the entire field will be removed form the MLS.
The settlement language also says that NAR and its affiliates can’t promote or create a third party to aggregate this information. That’s not to say that other third parties can’t do it. However, NAR is not allowed and has to be completely out of it.
2. "Sellers can offer concessions to the buyer in the public comments field in the MLS listing if the concessions are not conditioned on paying the buyer's agent commission. However, as part of the negotiation of the purchase contract, a seller and buyer can agree to apply the concession to the buyer agent's commission. As a practical matter, even though it cannot be called cooperative compensation, the amount of seller's concession can match the amount the seller would offer as cooperative compensation as part of the contract negotiations."
So, for example, let’s say a seller wants to offer the buyer a two and a half percent (2.5%) credit towards their closing costs. They can decide whether to apply the 2.5% credit to their agent’s payment obligation in the contract or negotiation. That is, assuming it is 2.5%. If the buyer and thier agent have worked out compensation for less than whatever is being offered, the difference can be applied to the buyer’s other closing costs and would not go to the agent as additional compensation.
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3. Offers of Cooperative Compensation May be Made off the MLS
1. "Nothing in NAR's settlement prohibits sellers or listing agents from making offers of cooperative compensation to buyer agents off the MLS (e.g., by email, newsletter, calls, text, etc. Be aware that all communications must always be TCPA-compliant.) Before listing agents can offer compensation to buyer agents, they must disclose and obtain seller approval for any offer in conspicuous language that stands out and is clearly visible."
So, sellers or listing agents can still offer compensation to buyer agents outside the MLS. However, before listing agents do so, they have to tell the seller first.
2. "An MLS cannot require agents to make or accept offers of cooperative compensation as a condition to joining or participating in the MLS. MLSs also cannot require that offers of cooperative compensation, if made, be blanket, unconditional, or unilateral."
In the past, that hasn’t always been true. In a lot of states or regions, you had to put a non-zero number in the MLS. That is part of why this lawsuit happened in the first place.
So, now, this is part of the changes proposed by this $400+ million settlement. The MLS cannot require you to complete a cooperating commission agreement when you list a property there.
4. Brokers Can Publish Offers of Cooperative Compensation for Their Own Listings on Their Own Websites
"Although MLSs are prohibited from publishing cooperative compensation offers, the settlement allows brokers and their agents to publish seller-approved cooperative compensation offers for their own listings (but not other brokers’ listings) on their own websites."
In addition, the $400+ million settlement allows brokers to post offers of cooperating compensation on their websites, emails, platforms, and within their brokerage. They can’t do it for other brokerages or for other agents. However, they can start doing this on their own website.
How this practice shows up in the marketplace will be interesting to track. I’m sure there will be teams of lawyers trying to figure out the right way to adhere to this rule.
5. Agents Must Make Commission Disclosures
"Agents must disclose in listing agreements, buyer representation agreements, and pre-closing disclosures that broker commissions are not set by law and are fully negotiable. The National Association of Realtors must require REALTOR® Boards and MLSs to include these disclosures in any form agreements they publish."
For the last point in this proposed $400+ million settlement, it just tells agents to disclose that broker commissions are not set by law and that they can be worked on further at the negotiation table. It also says that NAR must compel the REALTOR® Boards and MLSs to put these disclosures in any forms they publish.
This is something we have had in place in California for some time. I suspect the forms and disclosures will be updated to make sure this is bolded and prominent once the settlement is approved.
What does this all mean for us?
So what are we talking about here? Basically, what it’s saying is that NAR will take the responsibility of advertising the offering of compensation off of their side and put it onto individual sellers and listing agents. They’re giving you rules on how you can communicate any of this information to the general public.
What all this means for us will depend on how things roll out from now on. Since this is still a proposal, it is still possible for tweaks to be made or for the entire thing to be thrown out. So, it will really depend on each market and each individual region on how business is done normally there and what the standard becomes.
Personally, I predict some chaos and a bit of a “wild west” frenzy for some chunk of Q3 and Q4 this year, assuming this settlemnt is approved as is. Taking the commission component on the buyer side out of the MLS will make for a really interesting set of negotiations.
The ting that I have my eye on is how this will affect the valuation of real estate both from the buyer/agent level as well as the appraisal level. When you have the information publicly advertised and know what the standard is, you can take that into account and evenly compare it to all the other similar homes. However, if the MLS no longer publishes that information publicly, finding all the factors that lead to the ultimate sales price of a home will be much more complicated.
Its too early to make a prediction on how this will affect our market locally. Until we observe the implementation of these rules and the market’s response to them. So take all those headlines with a grain of salt!
For now, it might be helpful to think about what value you would expect and what you are willing to pay for it. I believe that this will now be a topic of conversation between every buyer and every agent, as well as every seller and every agent, in a manner that’s different than we’ve seen in the past. I’m positive it will shake the industry up. I believe that this will change some business models and business practices. Ultimately, I think it’s going to be a good thing for our industry as it will force transparency and conversation about value being delivered and the compensation for delivering it. More to come on this one.
WE hope our blog "Real Estate JUST Changed FOREVER: Realtor Commission Settlement" has helped you.
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