Understanding the New NAR Settlement and Its Impact on Real Estate Commissions

The world of real estate is undergoing significant changes, and one recent development that has caught the attention of industry professionals and consumers alike is the new settlement reached by the National Association of Realtors (NAR). The goal of this settlement is to transform how Realtor commissions are paid, with the hope of creating greater transparency for homebuyers and sellers.

1. What is the NAR?

The National Association of Realtors (NAR) is a professional organization consisting of licensed real estate agents who adhere to a code of ethics. With over 1.4 million members, NAR plays a crucial role in shaping industry standards and practices.

2. The Issue at Hand:

For years, critics have raised concerns about potential anti-competitive practices in the real estate industry that may limit choice for consumers and inflate commission fees. The new NAR settlement addresses some of these concerns by introducing measures aimed at increasing competition and transparency.

3. Core Elements of the Settlement:

a) Increased Transparency: One crucial aspect of this settlement is an emphasis on increased transparency in disclosing commission rates upfront to both buyers and sellers. This means you’ll have a clearer understanding of how much your agent will earn from a transaction.

b) Consumer Access to MLS Data: As part of promoting competition, NAR also agreed to allow greater access to Multiple Listing Service (MLS) data – a centralized database used by realtors – which was previously restricted to only licensed professionals. This change allows consumers better access to information regarding homes for sale, empowering them with more options when choosing an agent or selling strategy.

c) Commission Negotiation Opportunities: Under this settlement, agents are now encouraged to provide explicit information about commission rates so that buyers can consider it while negotiating offers on properties they wish to purchase.

4. Understanding Co-op Payments:

Co-op payments, also known as cooperative compensation or commission splits, are a common practice in real estate transactions. When a property is listed on the MLS, it includes an offer of compensation that will be shared with any cooperating agent who brings a buyer for that property. This compensation is typically paid by the listing brokerage to the buyer’s agent if a successful transaction occurs. 

5. Co-op Payment Prohibition:

Beginning in July 2024, co-op payments through the MLS system are no longer allowed. This change lets buyers negotiate fees directly with their agents. However, it also means buyers must now cover their agents’ fees themselves. This could be tough, especially for those getting mortgages and buyers with limited funds, who now have to add agent fees to their already tight budget for closing costs.

6. Co-op Alternatives: 

Naturally, as with all sudden and substantial change, alternatives can and will be found. One such alternative being discussed is to ask the seller for financial concessions towards closing costs (since your buyer agent fee is now an additional closing cost). For many buyers this means asking the seller to pay 2.5-3% of the sale price to your agent at settlement – effectively maintaining the financial status quo for real estate agents. But what is a problem for others may represent a gain for you.

7. Buyer Agency Fee Rebate: 

Prior to this NAR settlement, we at The Flat Rate Real Estate & Title offered a full 100% rebate of the buyer agent co-op to our purchasing clients. Our model works on the theory that if we are paid consistently throughout the process (at a much lower rate) but we eliminate the risk of not being paid on a commission basis, we can rebate buyers the full amount of the buyer agency co-op and everyone wins. We still feel the same – even with these changes. Therefore, if we, acting as your buyer agent, are able to negotiate a seller concession for buyer agent fees (which will soon become the norm), we will refund 100% of those fees to you at settlement (provided all of your service fees are paid in full.) Another win for you as a client of The Flat Rate.

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