NAR Settlement Explained. What You Need to Know.

[Jeet Sangha]

In light of the recent lawsuit against the National Association of Realtors (NAR), There has been significant discussion regarding real estate commissions following this settlement. Today, I want to take this opportunity to ​clarify some things and share what is going to change.

Under the current compensation model, a seller typically pays a commission of 5% or 6% to their listing agent. The listing agent then splits the commission with the agent who brings a qualified buyer, and this percentage is advertised on the MLS for each property. This settlement essentially decoupled the commission; now it's very likely that sellers may refuse to offer any commission on the buy side, and buyers will have to pay out of pocket if they want Realtor representation.

Starting this July, here's what's going to change:

1. Similar to signing a listing agreement before listing a house for sale with an agent, a buyer representation agreement is now required when working with a buyer's agent.

2. When hiring a Realtor to represent a buyer, the buyer and agent will negotiate the commission beforehand as part of the buyer representation agreement.

3. Buyer agent commissions will no longer be advertised on the MLS, but sellers can still offer to pay the buyer's agent commission as part of the purchase agreement or seller concessions.

4. Some sellers may opt not to pay the buyer-side commission, in which case the buyer will be responsible for compensating their agent.

How it may affect buyers and sellers: Sellers may feel that not having to pay the buyer's agent commission is good for them as they can save half of the commission. However, in a competitive market, if a seller down the street from you is offering to pay the buyer agent commission, the buyers are likely to choose that house over yours since they won't have to pay their agent out of pocket. This incentivizes buyers to look at properties that offer buyer agent commission. If you're not offering any commission, you may see reduced buyer activity on your property, or you may get unrepresented buyers, and they may not be fully qualified since they have not been vetted by a buyer's agent. The new policy may also hurt first-time buyers as they are usually cash-strapped. They barely have enough money for a downpayment, and now they have to come up with additional funds to cover the real estate commissions.

Furthermore, it is unlikely to bring home prices down because prices are market-driven and not related to real estate commissions.

I hope this information was helpful; if you want to discuss this in more detail, I'm always available to chat. 

[Carlos Valencia]

HI Jeet, 

Thank you for providing a simple and clear explanation on this whole NAR settlement. All this media confusing everyone and leaving all the important details is so frustrating that people are jumping into conclusion before really looking at all the details. All this means is just make sure you are an expert realtor and know what your doing to make sure you deliver the best service to your clients and standout from everyone else. Not that you didn't before but now more than ever.

@Albert Bui @Matthew Kwan

[Jeet Sangha]

Exactly! As a buyer’s agent, you’ll need to communicate your worth and expertise to the clients more than ever. 

[Shane H.]

Do you really think buyers are going to buy a different house over say… $4,500?

I’ll believe that when I see it. Buyers always paid both commissions. Regardless of what the settlement sheet says. It’s such a silly thing to say the seller pays anything when they sell their home. 

As long as the house appraises buyers are just going to wrap it into their mortgage, or not use an agent. If it doesn’t wrap into the mortgage the buyers agent didn’t do a very good job considering they are paying absolute top dollar for the house. Lol

[Jeet Sangha]

Quote from @Shane H.:

Do you really think buyers are going to buy a different house over say… $4,500?

I’ll believe that when I see it. Buyers always paid both commissions. Regardless of what the settlement sheet says. It’s such a silly thing to say the seller pays anything when they sell their home. 

As long as the house appraises buyers are just going to wrap it into their mortgage, or not use an agent. If it doesn’t wrap into the mortgage the buyers agent didn’t do a very good job considering they are paying absolute top dollar for the house. Lol

In my area, the average real estate commission is $25,000. Therefore, I believe that commission fees will be a significant factor in buyers' decision-making process. If the market shifts and becomes a buyer's market, we will see sellers offering to pay both sides of the commission to entice buyers to purchase their properties.

Both buyers and sellers can make valid arguments. On one hand, sellers may feel like they're losing out on their net proceeds after paying commissions and closing costs. On the other hand, buyers may feel like they're overpaying for the property to cover commission costs.

[Shane H.]

Quote from @Jeet Sangha:

Quote from @Shane H.:

Do you really think buyers are going to buy a different house over say… $4,500?

I’ll believe that when I see it. Buyers always paid both commissions. Regardless of what the settlement sheet says. It’s such a silly thing to say the seller pays anything when they sell their home. 

As long as the house appraises buyers are just going to wrap it into their mortgage, or not use an agent. If it doesn’t wrap into the mortgage the buyers agent didn’t do a very good job considering they are paying absolute top dollar for the house. Lol

In my area, the average real estate commission is $25,000. Therefore, I believe that commission fees will be a significant factor in buyers' decision-making process. If the market shifts and becomes a buyer's market, we will see sellers offering to pay both sides of the commission to entice buyers to purchase their properties.

Both buyers and sellers can make valid arguments. On one hand, sellers may feel like they're losing out on their net proceeds after paying commissions and closing costs. On the other hand, buyers may feel like they're overpaying for the property to cover commission costs.

No matter how you look at it, the fees were always there and always paid by the buyer. They’re still there and still paid by the buyer it will just reflect that on the settlement statement now in regard to the buyers commission. You’re still talking about 3% purchase price which in a residential sale I seriously spent will send a buyer down the road to the house they don’t like as much… seasoned buyers are going to pay the same price they would have. Especially investors. Investors calculate closing costs into the deal. Their offers will reflect that wherever the statement shows the money coming from. It’s right in bigger pockets calculators. Lol inexperienced buyers are always shocked by closing costs anyway. They’ll barely notice the commission. Banks are likely just going to finance it. Especially the program loans. 

literally the “seller paying commission” is just an accounting play to make banks finance commissions.

[Wilson Lau]

Thanks for the breakdown, Jeet. On the bright side, I think this will definitely separate realtors who are dedicated and putting in hard work vs. those who only put in minimal effort. On your end, I am curious how your sellers are reacting to this news?

[Jeet Sangha]

Quote from @Wilson Lau:

Thanks for the breakdown, Jeet. On the bright side, I think this will definitely separate realtors who are dedicated and putting in hard work vs. those who only put in minimal effort. On your end, I am curious how your sellers are reacting to this news?

 Hey Wilson, i’m working with two sellers ant the moment and none of them brought up the settlement. In fact, I had to bring it up.

[Jessica Dudley]

As someone who just got licensed and transitioned into real estate, this is by far the most succinct explanation provided on this matter. I have been so confused trying to figure out what is current vs what is changing, and everyone had these choppy responses. You response makes things crystal clear, and I really appreciate it.

[Jeet Sangha]

Quote from @Jessica Dudley:

As someone who just got licensed and transitioned into real estate, this is by far the most succinct explanation provided on this matter. I have been so confused trying to figure out what is current vs what is changing, and everyone had these choppy responses. You response makes things crystal clear, and I really appreciate it.

 I appreciate the kind response, Jessica! Just something to keep in mind, this is still a proposed settlement, yet to be finalized and approved by the DOJ. So, things may change still. Wishing you  much success!!