What to Know About the NAR Settlement

Have you seen the headlines about The National Association of Realtors (NAR)? The NAR recently agreed to a global settlement and it’s making major waves in the real estate industry. But the details are a little confusing (as everything around home buying seems to be!), especially for the average home sellers and buyers. You’re probably wondering: What does this mean for me? Let’s talk about it. 

As a licensed Realtor for 20 years myself, I have a lot of thoughts about this topic, and I wanted to share some takeaways that might clear up a few of your questions. One thing I want you to keep in mind, though: There’s still a lot that needs to be figured out in the wake of this news and things are changing all the time. Simply put, no one has every answer at the moment. But what we can do is give a big-picture breakdown on what the settlement means, both good and bad. First, let me give you a quick summary:

It’s become standard that home sellers are expected to pay 5-6% in agent commission fees, and those fees are typically split 50/50 between the sellers’ agent and the buyers’ agent. I probably don’t need to tell you this, but that’s pretty high! This likely made more sense when houses were listed under $500K. But as prices ballooned over the decades, the commission structure hasn’t adjusted in kind. However, this settlement will change all that.

When it goes into effect in mid-July 2024, sellers’ agents will no longer have to make commission offers to the buyers’ agents. In other words, the buyers’ agents aren’t guaranteed a split profit from the deal. (They call this “decoupling,” by the way.) This will fundamentally change how the commission process operates. A few of the other new rules include that the buyers’ agents’ compensation will no longer be allowed to be listed on MLS sites and buyers will be required to sign a Buyer Representation Agreement, which will be where the buyers’ agents compensation will be cemented. (We’veactually had Exclusive Buyers Contracts in Canada for years, by the way.) 

I know, that’s a lot! But now that you have some background, I’ll go into what this means for you:

More transparency and healthy competition. Buying a home is no easy feat, and the current setup makes it challenging for buyers to advocate for themselves. Now, buyers’ agents will be negotiating their fees directly with the buyers, so they’ll be more motivated to bring you the value that aligns with the fee you’re paying. You should also have a clearer understanding of what you’re getting from the buyers’ agent upfront. It should incentivize Realtors to do what’s best for the client, which will benefit the buyer in the end. 

Steering will be a thing of the past. Unfortunately, before this decoupling, there were some agents out there who’d only show buyers homes that guarantee them a big commission. This is called “steering” and is really an example of agents looking out for themselves instead of the client. But now, the negotiation between the buyer and the buyers’ agent is totally up in the air, and will hopefully give more say to the buyer in terms of the service they expect, relative to the fee they’re paying. They’ll have to sign the Buyer Representation Agreement up front and can discuss all the details before deciding to work together. 

However, that process could mean buyers pay more out of pocket. Right now, the 5-6% fees are bundled into the cost of the home, so when you’re securing your financing, that’s all included already. But in the future, you may be paying your agent separately based on your negotiated fee, which would not be covered by your mortgage. In that case, you may need cash for your downpayment, plus the cost of your agent. Alternatively, some experts are debating if people will look for ways around hiring a buyers’ agent at all. The head of the Mortgage Bankers Association even suggested loan officers get licensed as real estate agents so they can act as the buying agent and offer a competitive, potentially lower, fee. There’s still a lot to be seen in how people respond to this change, though—and a reliable, strong buyers’ agent is certainly well worth the cost. 

So, will this lower home prices overall? It’s tough to say and I want to be realistic that there are good and bad elements of this. Many say that homes are priced to cover that 5-6% fee that sellers have to pay, which would account for a higher overall cost. So without that burden falling on the seller, it’s possible that home prices could go down over time. But if the buyer ends up needing to cover the buyers’ agent’s fee, it may not save buyers a ton in the long run. Ultimately, we really can’t predict how buyers and their agents will work together in the aftermath. I’m feeling hopeful that it will lean towards a more affordable outcome for families going forward. 

One thing I will always recommend, though is to advocate for yourself and always work with people you trust. This is one of the most important purchases you’ll make in your life, and you should feel confident and comfortable asking questions. 

For all the Realtors out there who are grappling with this, it’s important to remember that, at the end of the day, our fiduciary duty to clients is to do what’s in their best interest. Something we should ask ourselves as real estate professionals is: For every transaction we do, is 5-6% commission fair? Is steering fair? Are we putting the client’s needs first? That’s the true metric of success. 

I’m curious, though what questions do you have for me about the NAR settlement? I’d love to hear from homeowners and Realtors in the industry about concerns, thoughts, and anything else on your mind. Let me know in the comments!