Understanding The Upcoming NAR Settlement Changes in Real Estate - HomeBuyer Edition

In less than a month, the real state industry will begin implementing the changes mandated by the NAR settlement.  If you're unsure about what this means for you, let's break it down.

As a full-time Realtor since 1996, I've witnessed numerous changes in the industry, and we've always adapted successfully.  So, if you're a home buyer, here's what you need to know about the upcoming changes.

THE CURRENT PROCESS

Traditionally, many home buyers have seen ads claiming that buying a home was free because the seller paid the buyer agent's commission.  While this might have seemed true, the reality was more nuanced.

When buying a house, you likely worked with a Realtor, who discussed your preferences, timeline and budget.  You probably signed a Buyer Agency Agreement, allowing the Realtor to accept the compensation that was listed in MLS.  After viewing potential homes, you'd make an offer, negotiate and proceed with inspections, loans, title searches and closing.  At closing, a Closing Disclosure would show all charges, including your buyer agent's compensation, typically paid from the seller's proceeds at closing.

WHAT'S CHANGING WITH THE NAR SETTLEMENT?

The process for home buyers will remain mostly the same, with a few key exceptions:

1. MLS Compensation Disclosure:  The MLS will no longer display the compensation paid to your Buyer Agent upon closing.  This means your Buyer Agent will not know their compensation in advance.
2. Buyer Agency Agreement:  Before touring homes, you must sign a Buyer Agency Agreement and have a consultation with your Buyer Agent.  During this meeting, your agent will outline their compensation expectations.
3. Compensation Clarity:  Your Buyer Agent will now discuss their compensation with you upfront.  If a seller doesn't agree to pay the buyer agent's fee, the buyer may need to cover it.  If the seller offers partial compensation, you'll need to decide whether to cover the remaining amount or skip those listings.
4. Compensation Confirmation:  Your Buyer Agent will need to confirm in writing with the listing agent what the compensation will be before showing homes.

For example, if your Buyer Agent expects to get paid 3 bananas, and the seller offers no bananas as compensation or even 1 or 2 bananas, you must decide if you are willing to pay the difference.  If not, you and your agent may want to avoid those listings.  You may also choose to ask the seller to pay that difference in the contract, but there is no guarantee that that will occur.  

WHAT HAPPENS IF YOU CANNOT OR WILL NOT PAY YOUR BUYER AGENT THE DIFFERENCE IN COMPENSATION?

If you cannot or will not agree to pay your Buyer Agent the difference in what your Realtor expects their compensation to be and what the seller is willing to pay towards that compensation, you may choose to ask the seller to pay it in your offer.  But if the seller chooses not to pay that difference, and you are not willing to pay that difference, then most likely your agent will not be able or willing to help and may terminate the Buyer Agency relationship.  If that happens, you will now be unrepresented.

1. You Could Choose To Allow The Listing Agent to Represent You:  this would be a dual agent situation and you must agree to allow this type of representation.  You should also understand just how being in a dual agency relationship will affect you from the time of contract acceptance to time of closing!
2. You Could Choose To Be Unrepresented:  in this situation, you are not being represented by any Realtor and must rely on your ability to complete your closing.  You could choose to have an attorney give you advice, but there will be a charge.  And, keep in mind, that the attorney will not have a vested interest in making sure that things go smoothly from the time of contract to the time of closing!
3. You Could Find Another Realtor Who Would Be Willing to Lower Their Compensation:  If you choose to go with another Realtor to assist you with the contract who agrees to a lower compensation, you should make sure you understand just what they will be doing to assist you from contract acceptance to contract closing.

THE BOTTOM LINE

Without a signed Buyer Agency Agreement, you can no longer call an agent on a Friday night expecting to see houses the next morning.  Instead, you'll need to have a discussion with your Buyer Agent beforehand.  Once you've signed the agreement, your agent will verify compensation in writing for each listing you're interested in.

Understanding these changes is crucial for your home buying plans from August (when the settlement changes go into effect) onward.  If you have questions, feel free to reach out.  Knowing what the facts are regarding the settlement and how these will affect you will go a long way to making sure your home buying journey is a smooth one!