By now you most likely know that the National Association of Realtors implemented new rules reforming how home buyers’ and sellers’ agents are compensated for the sale of a house. But do you know why these changes were made and how these new rules will impact you as a homebuyer or seller? Here’s the breakdown:
Why Did the NAR Change Its Rules? A Story of David and Goliath
In 2019, a group of five Kansas City, Missouri blue-collar workers and a personal injury lawyer filed a class action lawsuit against the NAR arguing that the NAR’s rules forced them to pay inflated commissions to real estate agents and violated antitrust laws.
In October 2023, a jury agreed with the sellers, ordering the NAR to pay at least $1.8 billion in damages. The NAR settled the lawsuits by agreeing to pay $418 million in damages and change its rules regarding commissions.
By revising the commission rules, the NAR’s goal is to mitigate regulatory risks and demonstrate its commitment to ethical practices.
These new rules, which were implemented last August, bring buyers’ and sellers’ agents into negotiations over commissions on the sale of the house-negotiating who pays commission on the sale of the house and how it is paid. With these changes it is the hope of the NAR to increase transparency, fairness, and consumer empowerment in real estate transactions.
In the past, commission structures have been cloudy, leaving buyers unclear about how much their agents were being compensated. The new rules will clarify these financial arrangements, enabling buyers to have a clearer understanding of where and how much of their money is going, who pays commission and how it is paid.
These changes were designed to empower and protect consumers, giving them more control over their transactions and encouraging them to negotiate commissions and terms more actively.
Home Buyers: Increased Transparency, Potential Lower Costs, & More Negotiation Power
The buyer will now have to negotiate their own contract with an agent and decide for themselves how much commission to pay.
In their negotiating process, buyers will experience a more competitive environment where they can make informed decisions about their agents and the associated costs. This could possibly lead to better pricing and services as agents strive harder to prove their value. With these new rules in place, buyers may become more aware of their rights and the costs associated with the real estate transaction, leading to stronger partnerships built on trust and more clarity.
With these changes in commission structures buyers might find more competitive pricing or incentives from sellers to attract offers. As buyers become aware of the commissions involved, they may feel more empowered, enabling them to make more informed decisions to negotiate terms that work in their favor. This is particularly relevant in a market where buyers frequently face competition and high-pressure situations.
Impact on Sellers: Better Understanding of Costs
Home sellers will now have a better understanding of costs and clearer insights on how much they might pay in commissions, allowing for better financial planning. With this increased awareness and knowledge concerning the commissions, sellers might adjust their pricing strategies to attract buyers who are now more informed. In addition, sellers now may need to consider offering attractive commission rates to attract buyers’ agents.
Agents Will Have to Prove More of Their Value
With the shift in the commission structure, agents will have to adapt to changes in how commissions are negotiated and communicated, potentially affecting their income. As all parties to the transaction become more aware and understand the nuances of the commission structures, agents may need to adjust their business models. This could lead to a shift in how agents market their services, possibly resulting in increased competition based on value beyond just facilitating the transaction.
These new rules may change the dynamics of the buyer-agent relationships. Agents may need to spend more time in educating buyers and sellers about the process, leading to stronger partnerships built on trust and transparency. Some agents may require additional training to navigate the new rules and ensure compliance while still providing value to clients.
Adapting to Market Changes
The real estate industry is constantly evolving with more information available to consumers through technology and on-line platforms. With time we will see how the complexion of the real estate transaction re-shapes relationships of buyers, sellers, and their agents, and how these changes affect the market dynamics and enhance ethical standards within the industry.
Overall, these changes aim to create a more competitive and transparent market, which could benefit consumers while challenging agents to adapt their business practices.
As the real estate business continues to transform, staying informed about all the changes will be crucial for buyers, sellers, and their agents navigating this new terrain.