UNDERSTANDING THE NAR SETTLEMENT FOR SELLERS and BUYERS

By Lloyd Sherman

On August 17, 2024, new rules began being enforced on the National real estate community that impact both sellers and buyers. This article will outline some of those changes and how they might impact both sides of a real estate transaction. All items in quotes “ have been extracted directly from NAR documents!

First let me say that in the market of Hot Springs Village the reasons that brought about this class action lawsuit and settlement against larger national real estate firms and the National Association of Realtors, were already being practiced in Hot Springs Village, so other than additional paperwork and disclosures, the settlement had little impact in Arkansas.

SELLERS – One of the major points in this lawsuit was that commissions/fees are not set and are negotiable. Again, in HSV that has been the case as long as I have been selling real estate in HSV. However, to ensure that sellers are aware of this going forward, here is what sellers should understand:

1. “You still have the choice of offering compensation to buyer brokers. You may consider this as a way of marketing your home or making your listing more attractive to buyers.”
2. “Your agent must conspicuously disclose to you, and obtain your approval, for any payment or offer of payment that a listing broker will make to another broker acting for a buyer.”
3. “This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.”
4. “You as a seller can still make an offer of compensation, but your agent cannot include it on the Multiple Listing Service (MLS).”
5. “Your agent can advertise your listing via off-MLS platforms such as social media, flyers and websites.”
6. You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs).

Author Note: So, little has changed for the seller, other than they must clearly understand what commissions or concessions are being granted and it must be in writing. However, sellers should also understand that the downside of not providing commissions/concessions is that it can have a negative impact on the pool of buyers that may be interested in your property.

BUYERS – The buyer side of a real estate transaction can wind up being more confusing than the seller side. Here is how the buyer side has been impacted:

1. “You will sign a written agreement with your agent before touring a home.”
2. “Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much.”
3. “The buyer agreement must include four components concerning compensation:
   • “A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined.”
   • “Compensation that is objective (e.g. $0, flat fee, X percent, x hourly rate) and not open-ended (e.g. cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer).”
   • “A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and”
   • “A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.”
4. “Written agreements apply to both in-person and live virtual home tours.”
5. “You do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.”
6. “The seller may agree to offer compensation to your agent. This practice is permitted but the offer cannot be shared on a Multiple Listing Service (MLS).”

Author Note: In the real estate process, the majority of the changes that have been instituted fall to the buyer’s side of the equation but have significant impact on both sides. For instance, if a seller decides they don’t want to provide compensation/consideration for the buyer broker side, then that responsibility falls to the buyer as brokerages are not going to represent either side for zero compensation. The buyer must now sign a legally binding agreement to pay the buyer side compensation and they may not be willing or financially able to do that. That in turn impacts the number of showings that may occur at a seller’s listing. The Buyer Representation Agreement has a clause in it that reads “Selling Firm is authorized by Buyer to negotiate on behalf of the Buyer and accept partial or complete payment of Selling Firm’s fee from Seller or from Listing Firm”. The reality is however, the buyer is now faced with a potential additional cost at closing if they become responsible for that portion of the transaction, along with their own closing costs and HSV buy-in fee.

While it has been my opinion this day was likely to arrive at some point, having it occur during a period of increased costs on most of society, along with higher interest rates, the timing couldn’t be worse. The overall impact is yet to be determined, but on the short term, it does appear that with everything else happening in the nation, buyer activity will most likely be reduced.

You should also recognize that the changes brought about by the lawsuit and settlement are a nationwide requirement and agents who fail to follow the new requirements are subject to having their license revoked.

As always, if you have questions, please do not hesitate to reach out to me.

Lloyd Sherman

Author & Real Estate Agent
Email: lloydhsv@gmail.com