Unsure about the true implications of the recent NAR facts settlement? The National Association of Realtors (NAR) has announced a settlement in the Sitzer-Bernette case, set to take effect this July. While media reports suggest this settlement will dramatically transform real estate by cutting costs, boosting consumer protection, and enhancing affordability, these claims might not fully align with the actual NAR facts.
Today, we’ll clarify the real NAR facts and how they might affect you if you’re in the market to buy or sell a home. Let’s get to the truth behind the headlines!
Myth 1: The settlement forces brokers to reduce their compensation.
This is false. The settlement does not impose any standard or limit on the fees brokers can charge or the services they offer. According to NAR facts, fee structures have always been negotiable and vary greatly by market, reflecting differences in marketing services and expertise. NAR facts further illustrate that this principle aligns with the notion of ‘you get what you pay for.’ For example, in high-cost markets like New York City, fees may be around 2%, while in other regions like the Midwest, such as Cincinnati and Northern Kentucky, fees often reach about 3% for both the buyer’s and listing agents. NAR facts underscore that the negotiability of fees remains intact, and brokers are not required to lower their commissions.
Myth 2: The settlement will, for the first time, allow sellers to no longer pay compensation for an agent bringing the buyer.
This is also false. There has never been a requirement for sellers to pay buyer agent compensation; it has been a customary practice rather than a legal obligation. NAR facts reveal that this practice has worked well because buyers already face costs such as down payments and closing costs. Therefore, it has made sense for sellers to cover the buyer broker agent commission in the past, and NAR facts suggest that this is likely to continue. However, the process and advertisement of this compensation will change under new rules anticipated in July. According to NAR facts, the National Association of Realtors has agreed to create a new MLS rule prohibiting offers of compensation on the MLS. NAR facts indicate that this would mean that offers of compensation could not be communicated via an MLS, but they can continue to be an option consumers could pursue off the MLS through negotiation and consultation with real estate professionals. NAR facts also emphasize that while compensation offers won’t be listed on the MLS, consumers can still negotiate and discuss compensation with real estate professionals outside of the MLS to ensure broad exposure and facilitate transactions effectively.
Myth 3: The settlement prohibits sellers from paying a commission to the buyer’s agent and relieves sellers of the financial burden.
This is false. The mandate restricts properties with offers of buyer agent compensation from appearing solely on Association-owned MLS platforms. NAR Facts highlight that this practice, however, can still be utilized through other marketing avenues. Sellers can continue to advertise buyer agent compensation on their own broker’s website or through alternative channels, and buyer agents can inquire directly. Sellers may opt to pay buyer agent compensation to differentiate their properties and attract the majority of buyers who use agents—around 90%. Opting out of paying buyer agent compensation does not eliminate economic considerations, as buyers might include compensation requests in their offers or ask for other concessions. Sellers looking for the best net offer may still encounter requests to cover buyer agent commissions in offers they receive.
Myth 4: The settlement will serve to lower prices and make homeownership affordable again.
Values in real estate are fundamentally determined by supply and demand, which is basic Economics 101. Fees in a real estate transaction cover various expenses, including commissions and related charges. Even if real estate commissions were reduced, such as from 3% to 2%, the impact would be minimal. For instance, on a $500,000 house, lowering the commission from $15,000 to $10,000 does not suggest the seller perceives the home as worthless and is willing to pass on the savings to the buyer. The value of a home is intrinsic and not influenced by changes in commission rates. Sellers strive to maximize their home’s value rather than diminish it. NAR Facts confirm that variations in commission rates have a minimal effect on overall home values and do not address the primary factors influencing housing affordability.
Myth 5: The settlement is a win for buyers who will now be able to negotiate the fee for representation.
Previously, buyers could include the seller-paid commission in the home price, allowing them to finance it over time instead of needing extra cash at closing for down payments and other expenses. Essentially, sellers factored these costs into the home price, which buyers financed through their mortgage. NAR Facts indicate, under the new rules, while the overall commission remains the same, there are changes in how and when it is paid. Buyers now negotiate upfront and must sign a buyer broker agreement with the agent before viewing homes. This agreement specifies the commission percentage upfront. The agent’s role then involves advocating for the seller to cover their commission, thereby relieving direct payment responsibilities for the buyer during the transaction.
Myth 6: The settlement will result in significant restitution to consumers who were harmed over recent years in their transactions by realtors.
This is false as well. NAR Facts show while the settlement totals over $400 million, when divided among potentially eligible consumers, it averages approximately $10 per person. The primary beneficiaries of this settlement appear to be the attorneys, who have requested more than $80 million in fees from the court.
What Does It Mean for You?
With the NAR Facts now clarified regarding the settlement, it’s important to note that some aspects are still pending finalization and judicial approval, expected by July at the earliest. My recommendation is to stay informed without undue concern. While changes are imminent, I believe the impact on the overall real estate landscape will be manageable.
If you have questions or need further clarification, reach out to your local real estate professional. Our team is here and prepared to assist you, whether you’re buying or selling in the Cincinnati or Northern Kentucky area, we’re here to provide clarity and guidance. Reach out to us at info@teamsztanyo.com with your questions or concerns about how these changes might impact your real estate journey. We’re committed to helping you navigate through any adjustments smoothly.