The NAR Settlement – what it may mean for sellers.
You’ve read about it – you’ve heard it on the news – you’ve seen it on social media and you have talked about it. The headlines are sensational –
“The 6% commissions for selling a home are gone” – CNN
“Realtors agree to axe 6% commissions in NAR lawsuit settlement” – LiveNowFox
“Powerful Realtor Group Agrees to Slash Commissions” – NY Times
“Realtors’ settlement could dramatically change cost of housing sales” – Washington Post
“Last week the National Association of Realtors agreed for the first time that Americans can negotiate lower commissions when they buy or sell their home.” – President Biden
The truth is – real estate commissions have always been negotiable and the average commission rate in Florida is 5.37%. As a
buyer’s agent – my last two commission rates have been 2% and 2.5% respectively.
How commissions work now.
Commissions are negotiated when a buyer signs a listing agreement with a listing agent.
The typical seller has a “final” number in mind of what they want from the transaction. This number is the offer price minus all their closing costs, mortgage payoffs, commissions, etc. Even though the listing price of the home is driven by the market and similar homes in the area, some sellers, as part of their strategy will price their home a bit higher (especially in a slow market) with the understanding that they may have to accept a lower price. The seller will calculate the closing costs in order to make sure that they meet their objectives.
Traditionally, it has been advantageous to all parties for the seller to pay the buyer’s agent commissions. Why? The seller knows the total closing costs for each offer made and doesn’t have enter into negotiations based on commissions in the contract. The buyer’s offer is their net amount plus some standard closing costs and paying commissions or trying to negotiate who pays commissions with the seller doesn’t come into play. This makes a lot of sense from a budgeting point of view. The buyer’s agent doesn’t have to chase down commission agreements with every buyer who asks them to show a property. Their portion of the commission is clearly stated in the MLS Agent Information section.
Before a seller signs a listing agreement, they can negotiate both the seller agent and the buyer agent’s portion of the commission. Full-service agents that provide extended and personalized services like professional photography, staging, email blasts, social media posts and advertising, showcase listings in Zillow and other online listing services and more, will push for a higher selling agent commission rate. Agents that are willing to readily discount their rates typically look to have a high number of listings and may not focus a lot of energy or funds into marketing any single property. Some may just take photos on their phone and upload it to their Multiple Listing Service.
What’s changing?
Soon – maybe in late July or August, listings will no longer be able to show the buyer agent’s commission on MLS. After the new rule goes into effect, listing agreements should be amended to reflect that offers of compensation cannot be communicated via the MLS.
In addition, MLS participating buyer agents need to have a commission agreement in place with a prospective buyer before showing a home listed on MLS. Typically, commission agreements for buyer agents are either for a period of time or a defined list of homes shown and the commission can be – but not exclusive- to a fixed fee or percentage of the purchase price of the home.
Does this mean seller paid compensation to buyer agents is going away?
No. Listing agreements can still provide compensation to buyer agents – but it cannot be displayed in the MLS listing. Sellers can also offer credits to the buyer (buyer concessions) – but they cannot be stated that they are for buyer agent compensation.
