The Real Estate NARS Tea: What are these momentous changes in real estate that everyone is talking about?

Starting this Saturday, August 17, 2024, new rules go into effect for the National Association of Realtors (“NARS”) that change the way realtors will be paid their commission when representing people buying and selling homes. These new rules came about as part of a $418 million settlement by NARS in March, and effectively eliminate the existing informal payment structures that have historically been used by realtors. Until now, sellers of homes typically would sign listing agreements agreeing to pay anywhere from 4-6% of the purchase price in commission, which commission amount would then be split between their agent and the buyer’s agent. So, Buyers did not have to pay anything to their realtor for their assistance. The new rules could change that.

Since the March settlement, realtors across the country have been evaluating the changes and how they are to implement them. There have been training sessions regarding new paperwork that will have to be signed by buyers and sellers, in addition to the traditional listing agreements.

More specifically – buyers’ agents, who were typically paid by the seller, now will need to let their buyer know at the outset of their relationship that some sellers may not agree to pay their commission, and therefore, the buyer would need to pay it. So, for example, if someone is buying a $1,000,000 home where the seller will only pay for their own agent’s 3% commission ($30,000), the buyer’s agent will ask the buyer to sign something agreeing to pay their commission. And depending on the commission negotiated with that buyer, that commission could tack on an additional $10-$30,000 on the purchase price. 

Additionally, realtors used to be able to include in the MLS listings for a home the amount of commission that a buyer’s agent would receive. The rules will no longer allow that. In other words, a buyer’s agent will have to reach out to the other agent directly to find out whether the Seller will pay any commission.

So, realtors have been doing everything they can to prepare for this in the past several months. It remains to be seen just how the market will respond. Will prices be impacted if Sellers are paying less in commission? Will buyers be willing to sign something agreeing to pay their agent’s commission? And if they are getting a loan for the purchase, will this commission payment be allowed by their lender? And if not, are buyers’ agents going to be disincentivized to show properties where their commissions won’t be paid by the seller? Or will buyers decide to go without an agent altogether to avoid paying a commission? If so, what sort of problems might arise during the negotiation process? And will attorneys representing buyers have to get involved earlier in the process because the buyer doesn’t have their own agent? Will buyer’s agents quit real estate altogether? Or will buyers realize the value of their agent and willingly agree to pay these commissions if the seller won’t?

As an attorney who traditionally represents both sellers and buyers after they have already nailed down the key terms with the help of their respective agents – I feel strongly that each party should have their own agent educating them and advocating for them early in the process. Both listing and selling agents, who are experienced, are the most equipped and knowledgeable as to the properties that fit the bill for their clients and how to market a property they are selling.

If you have questions about the new rules and how they might impact you, feel free to reach out to me at 847-705-7555 or kanderson@lavellelaw.com to discuss.