What the recent NAR settlement really means for agents’ commissions

Over the past two months many news sources have been discussing the recent settlement by the National Association of Realtors (NAR) and a class action lawsuit that was brought against the major brokerages in the real estate industry.

Many catchy headlines are stating that this is a major shift in the industry and making accusations that sellers no longer need to pay commissions, and that the 6% commission is dead. This is not the whole story.

The premise of the lawsuit stated that the way commissions are currently handled is creating a lack of competition in the market and creating fixed prices. While it is understandable that some consumers may feel that way, the real problem lies in commissions not being properly explained to the consumers. Commissions have always been negotiable and that will remain a crucial part of the home-selling process for consumers moving forward.

The two points that are expected to take effect in July that were agreed upon in this settlement are:

1.) An Exclusive Buyers Agency Agreement needs to be presented to buyers by their real estate agent prior to starting the home buying process.

2.) Sellers will not be required to offer the buyer’s agent a commission in the sale of their home.

Starting with the first settlement point, the Buyers Agency Agreement is already in place in Pennsylvania. This is something Pa. real estate agents have been required to provide for years now. This form is an agreement between the buyers and their agent that confirms they are working together exclusively. It establishes the working relationship, sets the expectations for the process and is where the buyer and agent will agree on compensation.

This contract can be set for any duration of time that both parties see fit. This step was considered crucial in the settlement because regulators felt that it helped address the compensation portion but also because it laid out a clear relationship and terms between all parties. One goal of professional real estate agents is always to be up front and transparent with clients. This is a step to make sure the process meets those expectations.

The second part of the settlement is the part that has caused the most confusion and misleading news stories in the industry. Sellers are no longer required to pay buyers’ agents commissions. This might seem like a major change for many people outside the industry but this has always been an option for sellers.

When negotiating with a real estate agent at the time of listing your home, the seller has always been allowed to negotiate what compensation will be offered.

For buyers concerned about affording a down payment, closing costs and, now, agent commission, there are options. This settlement laid out compensation options that include a flat rate payment for services, a percentage of the purchase price, or negotiating that the seller pay the commission as part of the buyer’s offer to purchase the property.

The sellers can also still offer a commission to the buyer’s agent in the listing agreement they sign with their listing agent. The only new rule with the seller still offering a commission to the buyer’s agent is that the listing agent will no longer be able to advertise those compensation amounts in the Multiple Listing Service used in the real estate industry.

The foundational belief of this settlement is that these options will create more competition and true commission negotiations.

To summarize, commissions are negotiable and there are options for handling this moving forward.

So when the time comes to list or buy a home, reach out to your local professional real estate agent and talk to them about your options. The agent you choose to represent you and their experience means more than ever before in this changing market.

In conclusion, the NAR settlement underscores the negotiable nature of commissions and presents consumers with a spectrum of options. When embarking on the journey of buying or selling a home, engaging with knowledgeable real estate agents to explore these options is paramount. In a changing market landscape, the expertise of a trusted agent can make all the difference.

Based in Newtown, Jim Mesveskas is director of operations and training for RE/MAX Properties Ltd.

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