On Real Estate & More – August 2024

THE RECENT NAR SETTLEMENT has been a hot topic in the media, triggering discussions about potential changes in the real estate market. Considerable misinformation has been reported, which has created confusion over what will happen in the real estate industry.

In this article, I will go over the two key changes brought about by the NAR settlement. But first I want to go over current buyer-agent compensation since that compensation is one of the key elements of the upcoming changes.

Historically, compensation for buyer’s agents has been facilitated through the Multiple Listing Service (MLS). This means the amount a seller is willing to offer a buyer’s agent is typically displayed on the listing itself for agents to view. This system has worked for years, however, some sellers felt that it created pressure to offer certain levels of buyer-broker compensation. Additionally, since sellers have primarily paid for buyers’ agents’ commissions, the relationships between buyers and their agents have not often been well defined and agreed to via a contract like a seller and their listing agent do with a listing agreement.

The NAR settlement seeks to address two key changes impacting buyer-agent relationships and compensation structure.

The first major change involves increased transparency in buyer-agent relationships. Oregon does not formally require buyers and sellers to sign an agreement outlining services a buyer’s agent will provide and the associated costs.

The new settlement requires buyers and their agents to establish a written agreement at the beginning of the home-buying journey (including before showing any homes to prospective buyers). This is similar to the practice between sellers and agents when negotiating a listing agreement. This written agreement will clearly outline:

  • The scope of services provided by the buyer’s agent, such as property searches, market analysis, negotiation on the buyer’s behalf, and guidance through the closing process.
  • The fees associated with these services. This could be a flat fee, a commission based on the purchase price, or another agreed-upon structure.

The second key change revolves around how buyer agents’ compensation is marketed. Currently, compensation for buyer’s agents is displayed through the Multiple Listing Service (MLS). This means the amount a seller is willing to offer a buyer’s agent is typically displayed on the listing itself for agents to view. Under the settlement, this will no longer be the case. Buyer agent compensation will not be allowed to be advertised on MLS listings.

This does not mean the end of compensation for buyer agents. Here’s what this means for both sellers and buyers:

  • Sellers will still have the option to offer compensation to buyer’s agents, but they will do it through different means than the MLS; such as their broker’s website, and/or the agents directly. The seller can choose to factor this compensation into their overall asking price or negotiate it as part of the offer process. Historically, sellers have offered compensation to the buyer’s agent as a marketing tool to attract buyers being represented by agents, and buyer representation has actually been increasing over the years.
  • Buyers will also have the option to directly compensate their agent. Similar to how a seller and listing agent negotiate their compensation and sign an agreement to work together, a buyer and their agent will do the same. It should be noted that many states in the country have already been operating with a mandatory Buyer Representation Agreement (though not in Oregon), so this is not a new thing for every state.

Some worry that the new rules will make it even more difficult for buyers who do not have plentiful cash, especially first-time home buyers; if buyers have to pay their agent on their own in addition to their down payment and closing costs, it will increase their financial burden.

Buyers wouldn’t necessarily have to pay their agent out of pocket. The new rule would allow buyers to ask sellers to pay the buyer’s agents at closing. This means that agent compensation may become part of the negotiation.

These changes will result in changes to the traditional real estate transaction model. However, it is important to remember that real estate agents provide a valuable service. Just like lawyers, accountants, land use planners, etc., they deserve fair compensation for their expertise. Real estate agents bring a wealth of knowledge and experience to the process, helping buyers navigate the complexities of one of the most important purchases of their lives. Their services include:

  • Market Expertise—They can accurately assess property values, ensuring you don’t overpay or miss out on a great deal.
  • Skilled Negotiation—They can negotiate on your behalf to get you the best possible price and terms on your purchase.
  • Potential Issues—They can identify potential issues with a property and help you mitigate risks associated with the transaction.
  • Streamlined Transaction—They guide you through the complex paperwork, inspections, and deadlines involved in buying a home.
  • Invaluable Connections—They have established relationships with qualified industry professionals like lenders, inspectors, and title companies, making the process smoother.

Will this be a rocky transition? Most definitely. Will more buyers try to navigate the purchase process on their own? Likely yes; some will be successful but others will run into pitfalls and cost themselves far more than if they had compensated an experienced buyer’s agent—similar to those who attempt to do their own taxes or represent themselves in a legal challenge. Will these changes lead to lower real estate prices equal to the cost of a buyer’s commission? I find it doubtful, as many sellers who decline to offer compensation to a buyer’s agent will utilize comparable sales that factored in commission to a buyer’s agent. While the exact long-term effects of these changes remain to be seen, I want to support any changes that empower buyers and sellers to achieve their real estate goals. We may not have all the answers yet, but I am here to guide you through this transition and help you navigate the buying or selling process, working to help you achieve a smooth and successful transaction in this new landscape.