The NAR Settlement & How It Practically Affects Buyers & Sellers

The NAR changes are officially in effect as of Saturday, August 17, 2024.

There’s been a lot of confusion, speculation, and misinformation circling around, but it all really boils down to  two important changes. Read on for what those changes are and what they mean for buyers and sellers.

Change #1: Mandatory Buyer Representation Agreements Before Showings

Every agent representing a buyer or tenant must have a buyer/tenant representation agreement signed before showing any properties. This agreement can be for a single home or for several over a set amount of time.

This was already considered best practice but wasn’t always followed strictly (guilty of this!).

Having a transparent conversation about representation and signing this agreement from the get-go establishes a relationship with clear expectations between the buyer and their agent. It ensures that everyone is on the same page about all the services the agent provides, how much those services cost, and who will pay for them.

Change #2: Buyer’s Agent Compensation Can’t Be Advertised on MLS

The Multiple Listing Service (MLS) is the private database that connects listing agents and sellers with buyer agents and buyers to sell property. Previously, one of the things included on each MLS listing was the buyer agent’s compensation.

After the settlement, this compensation amount can no longer be displayed on MLS. Going forward, a buyer’s agent must discuss compensation with the listing agent outside of the MLS (ex: text, call, email, IRL). However, Compass encourages and values transparency so the buyer agent’s compensation can be displayed on listings in your Compass portal.

What This Means for Sellers

Sellers continue to have the ability to offer any amount of compensation to a buyer’s agent, even if it’s nothing.

However, this decision is costly, as many buyers will simply move onto another home where the buyer’s agent compensation is covered by the seller.

It’s also important to note that you want an agent on the other side for a smooth transaction, free of any legal and logistical troubles. Remember that a buyer’s agent knows the buying process like the back of their hand, and they understand all the work needed to hold the deal together. An unrepresented buyer may be able to show themselves the property easily, but what happens once it’s time to make an offer? A buyer’s agent will write and explain the contract, coordinate with title and lending, digest the intimidating inspection report, perform comparative market analyses to avoid appraisal issues, and more. Not to mention answering the buyer’s questions and quelling their concerns throughout.

Given these factors, sellers should weigh potential savings against the impact on their home's appeal to buyers and the probability of getting everyone across the finish line for a successful closing.

What This Means for Buyers

This change may require buyers to advocate for their agent’s compensation for all of the services they provide.

For example, if a buyer wants a home where the seller isn’t offering compensation to the buyer’s agent, the buyer has a few options. One option is simply neogtiating that the seller will cover it. Another option is increasing the purchase price to include the compensation amount, ensuring that the seller still hits their net proceed goal (this is how it’s done now).

Both of these options ensure that the buyer doesn’t need to cover the compensation in cash at closing.

In some unfortunate cases though, buyers may need to cover all or part of their agent’s commission out-of-pocket....or just pivot to another home.

All of the above should be discussed at length with the buyer’s agent before agreeing to a representation agreement.

Final Thoughts

At the end of the day, compensation for listing agents and buyer agents have always been negotiable. Moving forward, the biggest change is that agent compensation will receive more attention than before.

But this also encourages transparency from the get-go, which is a very good thing for buyers and sellers alike.

If you have any questions, don’t hesitate to reach out!