NEW RULES FOR BUYING AND SELLING REAL ESTATE IN THE WAKE OF THE NAR SETTLEMENT....SIMPLIFIED
BACKGROUND
In March 2024, the National Association of Realtors (NAR) agreed to settlement terms that will significantly modify home buying and selling practices for many consumers nationwide, including in the Greater Palm Springs Area. This post summarizes the two key changes as a result of the settlement that will go into effect starting August 17, 2024.
Traditional Payment Model for Real Estate Agents
Most Realtors work on a commission basis, with the commission being a percentage of the final sale price. In California real estate commissions have always been negotiable. The listing agent negotiates a total commission to be paid at the close of escrow. Of that total commission, the listing agent agrees to share either a percentage or specified amount with the buyer’s broker. The amount a seller agrees to offer a buyer’s agent has been visible to other agents in our Multiple Listing Service (MLS)—important to note because this part will be changing.The final payment for services happens at closing and are reflected as part of the total sales price.
In California, buyers wishing to be represented sign a buyer agreement with an agent/brokerage detailing services and fees. Through the traditional model, most buyer’s agents receive payment for services via the commission split described above, if the seller has agreed. If a seller does not agree to a concession for the buyer’s agent fees, buyers would pay whatever amount they have negotiated with their agent.
TWO BIG CHANGES AFFECTING SELLERS AND BUYERS
FIRST CHANGE: SELLER OFFERS OF COMPENSATION
Starting August 17, 2024, NAR’s new rule will prohibit offers of compensation to buyers’ agents from being listed on the MLS. However, sellers can still offer concessions, like covering buyer closing costs, on the MLS. Compensation offers can still be negotiated directly between buyers and real estate professionals outside of the MLS. Read More Here.
What Does This Mean?
Commission paid to sellers’ agents and offers of compensation to buyers’ agents will remain negotiable, but the offers of compensation to buyers’ agents will no longer be allowed on the MLS.
Sellers can still make offers of compensation to the buyer broker, but starting on August 17, those offers cannot be displayed on the MLS, and MLS data or feeds cannot be used to facilitate a third party doing so. Listing brokerages will be permitted to display offers of compensation for their own listings outside of the MLS (e.g., on their own brokerage website, in mailings, email marketing campaigns, etc.), but they cannot display offers of compensation made on other brokerage’s listings.
As a Seller Should You Make an Offer of Compensation?
I believe the answer is usually yes. Offering compensation to the buyer broker has been proven to make a home more attractive to potential buyers. Additionally, a buyer represented by a professional makes for a smoother transaction overall.
Bottom Line: While seller’s brokers are prohibited from making an offer of compensation on the MLS, it is generally beneficial for a seller to offer compensation to a cooperating broker representing a buyer. In some instances it may be beneficial to make an offer of specific compensation by authorized means to the buyer broker and in other instances it may be beneficial to provide a statement that the seller will consider a concession to the buyer broker as part of an offer.
SECOND CHANGE: BUYER REPRESENTATION AGREEMENTS
After August 17th, prior to touring a property with an agent, a buyer must first enter into a written agreement with that agent or brokerage. While buyer representation agreements have been common in California, requiring a signed contract before touring a home (either in-person or virtually) will be new. Buyers will not need a written agreement when speaking to an agent at an open house or when asking them about their services. Read More Here.
What if the seller of a property a buyer is interested in is not offering a commission to the buyer’s broker?
The buyer representation agreement will set forth what happens in this circumstance. Generally, the buyer can make an offer subject to the seller agreeing to pay the negotiated amount of the buyer’s broker commission, the parties can negotiate for the seller to pay a portion of the buyer’s brokerage commission or the buyer could pay the full commission.
Bottom Line: Beginning August 17th, agents must enter into an agreement with a buyer before showing a home, specifying the terms of the engagement, including how the agent will be paid.
WANT TO KNOW MORE?
At Coldwell Banker, we have been busy preparing for the “new normal” and are ready for the new rules of buying and selling real estate in the Greater Palm Springs Area. While this blog provides a general overview of how the new rules may affect your experience as a buyer or seller, the impact on your specific situation will vary. As these changes roll out, I am here to be your resource, guiding you through the new regulations and discussing how they apply to your individual circumstances. Stay tuned for updates, and feel free to reach out with any questions or concerns. Feel free to call, text or email me to learn more.
**Post was inspired by Heidi Swanson at Lynden Realty in St. Paul Minnesota. Heidi is a top producing Realtor in the St. Paul area and is GRI | Old Home Certified. You can learn more about Heidi HERE.
