The NAR Settlement: What It Means for Home Buyers and Sellers
The real estate industry experienced a seismic shift in 2024 when the National Association of REALTORS® (NAR) reached a landmark settlement agreement that fundamentally changed how real estate transactions work. If you're planning to buy or sell a home, understanding these changes is crucial for navigating the new landscape successfully.
What Is the NAR Settlement?
In March 2024, NAR settled a class-action lawsuit by agreeing to pay $418 million in damages and implement significant policy changes. The settlement addressed longstanding concerns about real estate commission structures and practices that many argued inflated costs for consumers. The key changes went into effect on August 17, 2024, marking what industry professionals describe as a transformation that will change the real estate industry "forever."
The Two Major Changes
1. No More MLS Commission Advertising
Previously, home sellers would typically agree to pay both their listing agent's commission and the buyer's agent commission, with the buyer's agent compensation advertised directly on Multiple Listing Service (MLS) platforms. Now, real estate agents can no longer advertise or display buyer agent commission offers on MLS listings.
This means:
Sellers are no longer automatically expected to pay buyer agent commissions
Commission information cannot be included in property listings
Buyers and their agents must negotiate compensation separately
2. Mandatory Buyer Agent Agreements
Before the settlement, buyers could work with agents informally and compensation was typically handled behind the scenes. Now, buyers must sign written agreements with their agents before touring homes, clearly outlining:
What services the agent will provide
How much the agent will be compensated
Who will pay the agent's commission
That commissions are negotiable and not set by law
Impact on Home Sellers
What's Changed for Sellers
Greater Control Over Costs: Sellers now have more direct control over whether they'll contribute to buyer agent compensation. You're no longer automatically on the hook for both sides of the transaction.
Strategic Decisions: You can choose whether offering to pay buyer agent fees makes your property more attractive to potential buyers. This becomes a marketing decision rather than an automatic expectation.
Transparent Negotiations: Your listing agent must clearly disclose compensation arrangements and have explicit conversations about how commissions will be handled.
What Hasn't Changed for Sellers
Commissions remain negotiable: There are no set commission rates, and you can still negotiate with your listing agent
You can still offer buyer compensation: If you want to make your listing more appealing, you can choose to contribute to buyer agent fees
Agent services remain the same: Your listing agent will still provide the same marketing, negotiation, and transaction management services
Impact on Home Buyers
New Requirements for Buyers
Written Agreements Are Mandatory: You must sign a buyer representation agreement before your agent can show you homes. This agreement must include:
A clear description of services your agent will provide
Exactly how much your agent will be compensated
A statement that you understand commissions are negotiable
Confirmation that your agent cannot receive more than the agreed-upon amount from any source
Direct Commission Negotiations: You'll need to negotiate directly with your agent about their compensation rather than assuming the seller will cover it.
Payment Responsibility: You may need to pay your agent's commission directly, though you can still negotiate with sellers to cover this cost as part of your offer.
Potential Benefits for Buyers
Increased Transparency: You'll have complete clarity about what you're paying for representation and what services you'll receive.
Negotiating Power: With direct control over agent compensation, you may be able to negotiate better rates or service packages.
Informed Decisions: The mandatory written agreements ensure you understand exactly what you're agreeing to before beginning your home search.
Practical Implications for the Market
For Sellers
Potential Cost Savings: If you choose not to offer buyer agent compensation, you could save 2-3% of your home's sale price
Competitive Considerations: In competitive markets, offering buyer compensation might still be necessary to attract offers
Pricing Strategy: You may need to adjust your pricing strategy based on whether you're offering buyer compensation
For Buyers
Additional Costs: You may need to budget for agent fees that were previously covered by sellers
Negotiation Opportunities: In competitive markets, sellers might still offer to cover buyer agent fees to make their properties more attractive
Service Quality: With direct payment relationships, buyers may have more influence over the quality and scope of services they receive
What This Means for Different Market Conditions
In Seller's Markets
When inventory is low and demand is high, sellers may choose not to offer buyer agent compensation, potentially increasing costs for buyers. However, some sellers might still offer compensation to make their listings stand out.
In Buyer's Markets
When inventory is high, sellers may be more willing to offer buyer agent compensation as an incentive, potentially maintaining the status quo for buyer costs while giving sellers more flexibility.
Key Takeaways
Both buyers and sellers now have more control over real estate commissions and greater transparency in their transactions
Commissions remain fully negotiable – nothing in the settlement sets fixed commission rates
The total cost of real estate transactions may not change dramatically – the settlement primarily shifts who pays what and how those decisions are made
Working with experienced professionals is more important than ever as both buyers and sellers navigate these new requirements and negotiate compensation structures
Looking Forward
These changes represent the most significant shift in real estate practices in decades. While the transition may create some initial confusion, the increased transparency and consumer control over costs are likely to benefit both buyers and sellers in the long run.
Whether you're buying or selling, take time to understand these changes and discuss them thoroughly with your real estate professional. The new system requires more active participation from all parties, but it also provides greater transparency and control over one of the largest financial transactions most people will ever make.
The key to success in this new environment is clear communication, thorough understanding of agreements, and working with knowledgeable professionals who can guide you through these changes while protecting your interests throughout the transaction process.