The NAR Settlement Rules

The National Association of REALTORS® (NAR) was sued for practices that allegedly kept commission rates high and limited competition. But here's the good news: the new rules from the settlement, which go into effect on or before August 17 (depending on the local MLS), will make real estate deals more transparent and clarify the issue of compensation. This will benefit both buyers and sellers and encourage fair competition.

Most of the following information comes directly from the NAR website, with a few of my observations and explanations peppered in. Let’s get to it!

What the NAR settlement means for sellers in Idaho

You decide whether to compensate buyer brokers

You have—and always have had—the choice of offering compensation to buyer brokers, and if you decide to provide compensation, you choose the amount or rate.

Why would you offer compensation to a buyer’s agent in addition to paying your agent? You may consider doing this to market your home or make your listing more attractive to buyers.

Buyer agents (like listing agents) require payment for their services. If you don’t offer buyer agent compensation, which is your right, the buyer will need to come up with the extra money to pay their agent. While this is fair, the added costs may eliminate buyers with strict budgets, reducing the number of people eligible to buy your home. And if they aren't able to come up with the fee, they most likely will ask you to come up with the balance in the offer negotiations.

For this reason, offers of compensation are good for buyers and sellers and help make the path to homeownership accessible for all buyers, especially first-time, low-income, and underrepresented homebuyers.

If you choose to offer compensation, there are changes to how this can happen.

NEW: Offers of compensation are prohibited in the MLS

While you can still offer compensation, your agent can’t include it on a Multiple Listing Service (MLS)—MLSs are local marketplaces used by buyer brokers and listing brokers to share information about properties for sale.

Your agent can advertise your listing (and compensation offer) via off-MLS platforms such as social media, flyers, and websites.

You can still offer buyer concessions on an MLS (for example, allowance for buyer closing costs).

If you choose to offer a buyer’s agent commission, make sure you discuss compensation marketing strategies with your listing agent.

Consider broker-to-broker compensation agreements

Broker-to-broker compensation agreements can reduce confusion and misunderstanding when it comes to commissions. If you want to offer buyer agent compensation in this way, your agent will draft the agreement with the specific amount or rate you chose and get your approval before presenting the agreement to the other broker.

What the NAR settlement Means for Buyers in Idaho

NEW: You will sign a prior-to-showing agreement with your agent before touring (if you don't already have a buyer representation agreement in place)

This includes in-person tours and live virtual home tours.

Before signing this showing agreement, make sure it reflects the terms you’ve negotiated with your agent. Make sure you understand exactly what services and value will be provided, and for how much.

You won't need this agreement if you've already signed a buyer's representation agreement with your agent. Also, you won't need a written agreement if you are just speaking to an agent at an open house or asking them about their services.

Your buyer representation agreement must include four components concerning compensation:

1. A specific and obvious disclosure of the compensation the real estate agent will receive or how this amount will be determined.
2. Compensation that is objective (e.g., $0, X 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”).
3. A term that prohibits the agent from receiving more compensation than the amount or rate agreed to in the agreement with you; and,
4. An obvious statement that broker fees and commissions are fully negotiable and not set by law.

Here is what the settlement doesn’t change

Agents who are REALTORS are here to help you navigate the process of buying or selling your home and are ethically obligated to work in your best interest.

Compensation for your agent remains fully negotiable, and if your agent is a REALTOR, they must abide by the NAR Code of Ethics and have clear and transparent discussions with you about compensation. When finding an agent to work with, ask questions about compensation. As a buyer, make sure you understand what your agent may charge you and what services you are receiving. As a seller, make sure you understand the services you’re to receive and determine what compensation (if any) you’d like to offer the buyer’s agent.

You have choices. Work with your agent to understand the full range of these choices when buying or selling a home, which will help you make the best decision for your needs.

More details about these changes and what they mean can be found at facts.realtor.

Bottom Line

The key takeaways are: commissions are negotiable, compensation stays out of the MLS, and buyers need to have a prior-to-showing OR buyer's representation agreement in place with their agents before touring homes. Not feeling 100% comfortable with the information? Call me to discuss how these changes will affect you as a home buyer or seller.