The NAR Settlement: Potential Impact for Homebuyers and Sellers

Chances are you’ve heard the news about the NAR Settlement. It’s sent ripples through the real estate industry and you’d be hard-pressed to avoid the latest “hot take” in the media or the socials. I’m not here to rehash details of the lawsuit, but let’s think about how this might impact homebuyers and sellers if the settlement is accepted come mid-July.

The man outcome is that real estate commissions between listing and buyer agents will be uncoupled, and can no longer be listed on the MLS (master listing service). Sellers already enter into listing agreements with their realtor prior to the home being listed for sale, but in many states buyers do not – that is about to change! In fact, most buyer agents are now going to be required to have a signed buyer agreement prior to even showing you a home. So before you even start shopping, you and your realtor will contractually agree on the fee for their services.

How might this shake out:

  • Some buyers (likely first time buyers and / or lower income buyers) will attempt to shop without representation. They’ll jump on the internet to look for homes, reach out to the listing agent and ask to see the home, to which the listing agent will ask, “Are you pre-approved?” and send them to a mortgage lender if the answer is no. But then what? Listing agents do not typically show homes except during open houses, that’s one of the things buyer’s agents have always handled. Additionally, if the buyer is unrepresented, the listing agent knows they will be negotiating this transaction with emotionally-invested buyers who don’t understand the industry. And some states, New Mexico for one, are already drafting a document for unrepresented buyers to sign acknowledging they are on their own to write up offers, counter offers, assessing value before putting in an offer, home inspectors, and so forth. There is no doubt in my mind that offers from buyers who have a realtor will get priority over those that are unrepresented.
  • Buyers who do understand the value of representation and enter into an agreement will still have an unknown expense impacting the price point they can shop in. Let’s say you agree to a 3% commission for your realtor, and you’re shopping for a $350,000 home. That’s $10,500 in realtor commissions that you may or may not have to come up with at closing. Of course, as part of negotiations your realtor will request that the seller contribute to the cost of your representation, but if or how much of that comes to fruition will depend on the seller’s motivation, as well as market conditions. As a buyer you have to assume you’ll be on the hook for that commission, and shop accordingly. This lowers the price point you can shop in, thereby limiting your options.
  • Some sellers may decide this outcome means they do not have to contribute to buyer representation, and technically that has always been true. Set aside the fact that when they originally purchased their home, they benefited from the current status quo; It is within their rights to deny to contribute these funds. Buyer agents won’t know if the seller is open to contributing to buyer representation until an offer is submitted (or possibly by calling the listing agent prior to showing the home). By not contributing, the seller will be not only limiting the pool of possible buyers of their property, but also creating a lot more showings that won’t result in an offer. I expect listing agents are going to be fielding a lot more calls up front!
  • Most sellers, if properly educated by their listing agents, will understand that they will get the most bang for their buck by offering to contribute to buyer representation cost. Rather than being a given, as is currently the case, this is now an active part of negotiations throughout the transaction that can change depending on appraised value, outcome of home inspections, etc.
  • Once the buyer agent agreement form has been ratified, the buyer’s agent knows how much they will make for their services. These may still be percentages of the purchase price, or they may negotiate a flat fee that is not impacted by the purchase price. If the agreement is 3%, for example, and the seller only offers 2%, then the buyer has to come up with that additional percentage point at closing.

The only constant in life is change, and this is a BIG change that has many folks nervous. Most experts agree that we’ll likely see many people working as realtors today changing to an alternate career. I think buyer side commissions are going to come down a bit, but those who are in this industry for the right reasons will stay and continue to do well. Some think this will result in lower property values, but given that we’ve had two years of high mortgage interest rates that priced many buyers out of the market, and still home prices have increased an average of 5.2% year over year, I don’t see this happening.

Beyond that, what changes, and what kind of a new status quo we settle into remains to be seen.

“May you live in interesting times!”

Tammy Metzger

Residential Mortgage Loan Originator. Dog Mom. Knowledge Seeker. Voracious Reader. Solo. Outdoors enthusiast. Genre Film Lover.

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