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What is NAR and Their Current Policy?
NAR stands for National Association of Realtors and it’s the largest trade association in the US with over 1.5 million members. NAR was founded in 1908 in Chicago originally named National Association of Real Estate Exchanges (NAR).
NAR currently requires home sellers to pay the commission of both the buyer's real estate agent and their own real estate agent. Selling agents must also list the homes on NAR’s listing portal called MLS (Multiple Listing Service) with the amount the buyer’s agent will make from the sale. This new agreement will change these rules and the home buying and selling business model.
NAR Settlement
It’s important to state that the agreement hasn’t been approved yet. The settlement is subject to court approval and it will go into effect July 2024. The current settlement has NAR paying $418 million in damages and prohibiting offers of broker compensation on the MLS (NAR).
So, broker compensation can no longer be communicated through MLS, but this negotiation can continue off the portal with real estate professionals. Many people believed that having buyer agent compensation shown on the listing made buying agents want to negotiate a higher sales price to increase their commission. This new rule will now require buyers’ brokers to have written agreements with their buyers. This will help consumers understand exactly how much they are paying for the value and services that will be provided (NAR).
How Does This Impact Home Owners and Buyers?
While we can’t predict the future or what exactly will happen, we can provide a few changes that are likely to happen. While commission has always been negotiable, there has been a standard of 5% to 6% commission. Now, listing brokers must communicate an offer of compensation so home owners know what rate they will be paying their agent before the process begins. This allows representation from professionals more accessible, may decrease the costs for home buyers to secure professional agents, increase the potential buyer pool for individuals selling their homes and increase fair housing opportunities. This could lead to a competitive housing market. Real Estate Agents can now compete on commissions, letting home buyers “shop around” for different rates before committing to a real estate agent (CNN).
Most of the time, home sellers were the ones having to pay the commission to both the buyer’s agent and their own agent. With this new rule in place, sellers won’t be on the hook for having to pay both agents. For example:
A homeowner would spend up to $60,000 in agent fees for selling a $1 million property. If commissions were reduced by 30%, they would then pay a commission of about $42,000. As a homeowner selling a home, knowing you could pay less in agent fees, you may be willing to accept a lower offer on your home because you don’t have to cover as many costs. This could result in a decrease in home prices around the US.
While this settlement has not yet been approved, there is a lot that can happen to the housing market, real estate agents and home buyers and sellers. This provides an opportunity for growth and change of the current home buying and selling business model.