NAR Settlement Goes Into Effect Today: Here’s What’s Changing and Why

CNN
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On Saturday, a new set of rules governing how most real estate professionals do business in the United States officially went into effect — and the changes could upend the way Americans buy and sell homes.

The National Association of Realtors, the powerful trade association with 1.5 million members, agreed to the rules as part of a $418 million settlement in antitrust lawsuits. The rules are intended to change how real estate agents get paid and who pays them. It’s the biggest change to the organization’s rules in at least a generation.

In a statement, Kevin Sears, president of the National Association of Realtors, said the changes “help provide consumers with greater clarity and choice when buying and selling a home.”

“I am confident in our members’ abilities to prepare and embrace this evolution in our industry and help guide consumers in the new landscape,” he said.

Here’s what you need to know:

Historically, buyers were not expected to pay money directly to their real estate agent. This is because the real estate broker’s commission fees – for both the buyers’ agent and the sellers’ agent – are paid by the seller of the home.

Committees The fee is typically 5% or 6% of the home’s sale price, so for a $450,000 home, roughly the median price of a home in the United States, the seller would be responsible for $27,000 in fees. Several experts have stated that He said these commissions were included in the listing price of homes, inflating home prices.

But starting this week, sellers’ agents will not be allowed to advertise commission fees to buyers’ agents on the multiple listing services that real estate agents use to list and find homes for sale and facilitate transactions.

This means that a buyer’s agent can no longer use the database to search for homes based on how much they will charge, a practice called “steering.” Which has led some agents to skip showing homes that fit their clients’ criteria just because the seller was offering below-market commission rates, critics allege.

“With no MLS commission anymore, it’s harder to steer you, because you can’t just do a 3% commission search,” said Tanya Munster, a law professor at the University at Buffalo School of Law. “You can still call everyone and see what the situation is, but it makes it harder.”

The second change affects the relationship between potential home buyers and real estate agents. Buyers must now sign a legally binding representation agreement with their agent before they can begin touring homes together.

These agreements are designed to inform homebuyers how their agent will earn his or her commission, and if sellers do not agree to pay the agent’s commission, the buyer may be responsible for that payment. They are also designed to inform buyers that this commission is fully negotiable.

“The idea is that if buyers realize that they can negotiate commissions, and if they actually pay them, not the seller, it could create a more integrated market and perhaps a menu of services in the future that is more comparable to other developed countries,” said Norm Miller, professor emeritus of real estate at the University of San Diego.

A key element of these agreements is that the buyer’s agent cannot receive more compensation than what the buyer initially agreed to, even if the seller is willing to offer more.

On it WebsiteThe National Association of Realtors said the two changes “eliminate any theoretical guidance, as a broker would not receive more compensation by directing a buyer to a particular listing because it had a ‘higher’ compensation offer.”

A final approval hearing is scheduled for Nov. 26, but a judge granted preliminary approval to the National Association of Realtors settlement in April.

Some brokerages have realized that buyers can be nervous about signing anything that commits them to a legally binding relationship with an agent before they even start touring homes, so they’ve created short-term contracts that cover a week or even an hour so buyers feel comfortable with the agent before committing.

But Monster warns buyers to be careful about signing any type of legally binding contract without reading it carefully.

“You’ll find all sorts of different versions of these agreements that will vary from state to state, from brokerage firm to brokerage firm. There could end up being thousands of them,” she said. “My concern is that buyers and sellers might sign something without thinking and then be surprised when it’s not what they thought it was.”

Leo Barriga, CEO of EXP Realty, one of the largest real estate brokerages in America, told CNN that he has simplified his company’s buyer agreements to avoid potential confusion.

“It was designed to be something that a consumer could read in their driveway without feeling like they were in an uncomfortable situation,” Barriga said. “You don’t need a law degree to read it.”

Barriga decided to make his contracts widely available so that other companies could use them as well.

“We just want consumers and agents to have as little friction as possible in the future, because that’s the last thing we need right now,” he said.

Some real estate experts have warned that the new rules could have a chilling effect on the home buying market as more buyers may now be forced to buy. They are expected to be able to provide cash to pay their customers.

But Monister said she believes the changes will help consumers in the long run.

“I think the best thing for home buyers and sellers is for commission rates to go down over time,” she said.

But it remains unclear whether the cost of buying and selling homes in the United States will immediately become cheaper for most people.

“I think eventually someone will say, ‘Let’s compete on price,’” says Miller of the University of San Diego. “If it’s a big company, that could lead to a revolution. But when that will happen? I don’t know.”

In the short term, Miller believes mortgage rates will have a greater impact on housing affordability than any specific change in rules.

The average 30-year fixed mortgage rate recently hit 6.49%, which remains high compared to recent history but is close to its lowest level in more than a year.

“This has a much bigger impact on affordability than anything we’re talking about here,” Miller said. “If mortgage rates fall further, the rule changes will be nothing more than noise in the equation, compared to that.”