Gavel and house, representing NAR Settlement

Home Buyers and Sellers: NAR Settlement FAQs, Part 1

The real estate industry is an ever-changing landscape. Some big changes are on the horizon as a result of a major settlement between the National Association of Realtors® (NAR) and the Department of Justice. It will impact several key aspects of our business. However, the issue that affects home buyers and sellers the most will relate to how agent and broker commissions are negotiated and paid by both parties.

In a nutshell, commission rates will be more transparent between real estate agents and their clients. Fees have always been negotiable, but sometimes were not communicated clearly to clients. In addition, home buyers will now need to be more aware of instances where a listing broker may not be offering to share their fees with the buying broker/agent. While buyers have had an obligation via their buyer agency to pay their agent’s fees, these fees were often offset by the listing agents’ offer of cooperating compensation. The objectives of this settlement are to create more transparency and help avoid questionable real estate practices like inflated commissions, overpriced properties and buyer’s agents only showing homes represented by listing agents offering a larger commission split or higher selling prices. At the same time, the potential for buyer’s paying agents directly will have a significant impact on how business is done, especially when it comes to their upfront costs of buying a home.

Here are a few frequently asked questions about this NAR settlement topic:

Should I Be Worried as a Home Buyer or Seller?

Things are always changing in real estate with the economy, market conditions, regulations and even unexpected issues like Covid. In all situations, brokers, agents and their clients have found effective solutions to ensure that people are able to buy and sell properties. Our best advice is to ask questions, do your homework and understand these changing processes. Talk with your agent and take the time to make smart real estate decisions.

Why Was this Settlement Reached?

The lawsuits that led to this settlement were claiming that some listing brokers were offering buyer’s agents/brokers higher commission rates or listing properties at higher prices in order to attract more attention from agents. Some buyer’s agents were allegedly only showing homes that offered higher commissions during the sale, as opposed to all the available properties that they could have toured. The settlement aims to protect buyers and sellers from overpaying for agent/brokerage services by eliminating the selling broker’s commission splits and imposing other rules to promote more fairness in the industry.

How Did Real Estate Commissions Used to Get Paid?

Traditionally, home sellers would pay a commission to the listing broker when selling their home. Then, the listing broker would pay a portion of the commission to the buyer’s agent and broker. That percentage was always negotiable, but was not always communicated as such. Unfortunately, not many home sellers and buyers were aware of this fact, though it is clearly stated in the Pennsylvania Listing Agreement:

No Association of REALTORS® has set or recommended the Broker’s Fee. Broker and Seller have negotiated the fee that Seller will pay Broker… Broker will pay from Broker’s Fee a fee to another broker who procures the buyer, is a member of a Multiple Listing Service (MLS), and who: (A) Represents Seller (SUBAGENT)… (B) Represents the buyer (BUYER’S AGENT)…”

What was the Problem?

The lawsuits contended that home buyers and sellers did not fully understand how real estate commissions were paid. Sellers assumed they were paying the buyer’s agent to work against their best interests (i.e., negotiating a lower price). Buyer’s didn’t fully understand their obligation of paying the buyer’s agent because the commission was taken out of the seller’s closing costs. Here is some verbiage from the Pennsylvania Buyer Agency Agreement:

“It is Broker’s policy to accept compensation offered by the listing broker. If the amount received from the listing broker is less than the amount in Paragraph 2(B)(1), in a purchase transaction, or 2(B)(2), in a lease transaction, Buyer will pay Broker the difference, unless seller agrees to pay the difference as a term in the agreement of sale.”

What Are the Key Changes Coming from the NAR Settlements?

The settlements aim to increase transparency regarding broker and agent compensation. Some of the key changes include:

  • Listing brokers cannot display a cooperating commission fee (the buyer’s agent’s split in the MLS or other related listing systems.
  • Home buyers are to sign a buyer agency agreement with their agent before being shown a property listed on the MLS.
  • Sellers are no longer obligated to offer a cooperating fee to the buyer’s broker (which has actually been the case in Pennsylvania for over 30 years).
  • Home buyers must understand they may be responsible for paying their agent’s fee directly (also already the case in PA for 30-plus years).
  • Buyer’s agents must obtain the details of any cooperating fee from the listing agent before showings, and then inform the buyer.
  • Buyer’s agents should get written documentation of any cooperating fees for each listing offering a commission split.
  • Buyer’s going directly to a listing agent must still sign a buyer agency agreement with that agent.

How will This Affect Dual Agency?

“Dual Agency” refers to a situation where the listing agent also represents the buyer. The new settlement will make it more difficult to establish this agreement. Both the buyer and seller would have to agree to dual agency. If the listing agent is not offering a cooperating fee, then the buyer would be responsible for paying the agent directly for their services. This may create some litigious situations if one side feels they weren’t fairly represented. There’s a good chance dual agency transactions will decrease and some listing agents may not be willing to work the buyer’s side in order to avoid potential conflicts and complications.

We’re just getting started on this topic. Stay tuned to The Cyr Team Blog for Part 2 of this article. We will cover even more FAQs about the NAR settlement and the new regulations that will be affecting the real estate industry.

If you have questions about this or any other real estate topics—or if you are thinking about buying or selling a home in the Southeastern Pennsylvania or Northern Delaware areas—contact The Cyr Team today.


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