The National Association of REALTORS® NAR  Settlement Agreement

The National Association of REALTORS® NAR settlement agreement has significant implications for homebuyers. Under the new terms, buyers are now being obligated to pay the commission of the agent who shows them a property. This stems from a legal settlement with the U.S. District Court for the Western District of Missouri, which mandates all real estate agents secure a signed buyer broker agreement from their clients. However, it’s crucial for buyers to understand these agreements do not ensure representation or guarantee the agent will prioritize the buyer’s best interests. The primary purpose of the agreement is to ensure the agent and their brokerage receive their commission, even if the seller or the seller’s broker declines to cover it.

In the pass, the REALTOR® database of properties, known as the MLS, required listing brokers to disclose the seller agents commission share offered to cooperating agents. Now, the cooperating agent is labeled a buyer’s agent regardless of whether they truly represent the buyer’s interests in the sale.  And the MLS is no longer allowed to be transparent with the commissions shared between the cooperating buyer’s agent and the seller’s agent.  NAR has created a guessing game for the buyers and the agent who shows them a property or home.

Historically, buyer brokers and their buyer agents have been part of the real estate landscape, originally serving investors or high-end buyers willing to pay their commission.  In 1993 the MLS rules were revised to require the Seller’s agent to disclose the shared commission amount in the the MLS database.  This compensation cooperation marked a significant shift, expending the opportunity for ALL buyers to have buyer broker representation in their real estate purchase.  The transparent disclosure of real estate commissions to cooperating agents opened the REALTOR® community to accept buyer brokers and their buyer agents more broadly.

Initially, some agents offered nominal $1 commissions, either assuming buyers had the means to compensate their agents or as a strategy to deter other agents from showing their sellers property, thereby securing the full commission set by the seller for themselves.  Most Listing Agreements in Florida have the listing agent and seller agree in the agreement a portion of the total commission to be shared with buyer brokers and their buyer agents.

Listing brokers are now prohibited from advertising in the MLS the commission amount they will share with buyer brokers from the sellers commission paid to their office.  This rollback in transparency is seen by many as a step back for buyer representation, harking back to practices from decades past. Compounding this issue is the misconception that buyers are in a position to pay out-of-pocket for the services of an agent during a real estate transaction.  The NAR Settlement has potentially added thousands of dollars to the already substantial costs the buyers have when purchasing a home.

The rationale behind the NAR  decision to implement these terms may be rooted in the traditional structure of real estate transactions.  Sellers typically cover the listing agent’s commission. This structure incentivizes most real estate brokers to focus on listing properties to attract buyers, in hopes of obtaining the entire commission for themselves.  There is only a small minority of exclusive buyer broker in the entire US.  Exclusive buyer brokers only work with buyers and do not list seller’s property for sale.  This prevents any conflict of interest which may arise between the buyer and the seller. Most real estate brokers do not want to give up the opportunity to make more money by obtaining their own buyer and keeping both sides of the commission.

Lack of cooperation between agents has increased significantly since 2019 and the Covid 19 epidemic.  Brokerages began purchasing their seller’s listing and flipping them to international investors and REITS (Real Estate Investment Trust).  Investors in collaboration with major real estate firms, outcompeted domestic buyers for properties by offering cash payments. The last 6 years has provided newer agent with  very little experience cooperating with other agents.  With the Seller’s market they have been able to  specialized in detouring outside cooperation from other agents and their buyers.

Buyer brokers still receive their commission from the shared commission offered by the sellers agent.   The NAR Settlement has raised concerns among buyer brokers buyer agents.  They argue that NAR failed to recognize the extensive efforts buyer brokers put into assisting buyers throughout the purchasing process.  These brokers and their agents start with counseling, hours of searching properties, scheduling showings, writing contracts, negotiating the sale, scheduling inspections, communicating with lenders and providing guidance to buyers through closing.

The settlement does permit the listing agent to disclose any contribution the seller is willing to make towards the buyer’s closing costs in the MLS and on their websites. 

The closing costs encompass the buyer broker and buyer agent fees, this effectively allows for an indirect disclosure of the funds available to pay the buyer’s broker at closing. While this may seem like a workaround, it inadvertently reveals to the buyer the amounts which can be allocated to their broker, impacting the negotiation dynamics.  The settlement does not prohibit the listing office from displaying the shared commission on their website.  Despite this, there has been a noticeable lack of transparency in commission disclosures across listings. Industry professionals have observed many property sales in certain regions are now conducted outside the MLS, Multiple Listing Service , through what are known as pocket listings and for sale by owners.

This settlement agreement has exacerbated the housing dilemma for many buyers, particularly those who cannot afford the rising prices of homes due to insufficient income to qualify for a mortgage in most states. The National Association of REALTORS® NAR has, in the eyes of some, compounded the difficulties faced by buyers.

The National Association of REALTORS® NAR is a significant political contributor in Washington, second only to the U.S. Chamber of Commerce. In recent years, their lobbying efforts have been focused on maintaining favorable conditions for investors, which has led to increased single-family home and rental prices. There has been little progress in reducing excessive real estate taxes or insurance costs for homeowners.

The reliance on third-party property valuation systems by brokers, buyers, and sellers has been sanctioned.  Brokers have been permitted to purchase listings directly from sellers, subsequently flipping them to investors. This practice has resulted in double commission earnings for brokers but has also been implicated in the artificial inflation of property prices nationwide. The implications of these developments have had a profound impact on the U.S. real estate market, affecting both market dynamics and housing affordability.

Beverly Howe,  Florida Buyer Broker™

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