Untangling the NAR Settlement

By now I’m sure you’ve read a few articles (or at least headlines) regarding the recent news about a settlement agreement announced by the National Association of REALTORS® (NAR) over real estate commissions.

If you’re not really sure what all of this is about, or simply confused over the matter in general, you’re definitely not alone.

Setting the record straight

One significant cause of confusion surrounding this situation is some of the blatant misinformation that’s been spread by big national media companies. When news of the $418M settlement broke weeks back, CNN and others published headlines insinuating that the NAR set commission standards. Even President Joe Biden misspoke in recent comments, suggesting the settlement would make commissions negotiable for the first time.

Let me be super clear – real estate agent/broker compensation has always been negotiable. Always. And it will continue to be negotiable. While it’s true that the most typical scenario today is where a seller agrees to pay a listing agent 6% of the sale price of their home, which the listing agent then splits with the agent representing the buyer, I’ve seen a range of different commission percentages and types of fees since I’ve been in the biz.

All you really need to know right now

Another reason this settlement situation is confusing is simply that it is very complex and political in nature. Because of this, I won’t bore you with extraneous details but rather summarize some of the key points I think you should know as a homeowner, potential home seller or buyer:

The most material change that will come of the proposed settlement is that come July of this year, real estate agents will be prohibited from including any mention of agent/broker compensation on a public MLS listing.
- Today, on any listing (Zillow, Realtor.com, etc.), if you scroll all the way to the bottom of the property details, you’ll see something like “Buyer agency compensation: 2.7%” – this is the listing agent’s way of letting buyer agents know what percentage of the Seller’s commission will be split with the buyer agent who brings the buyer to the closing table.
- The purpose of this new rule – and really what’s at the heart of the lawsuits that led to the big settlement – is to protect consumers from unethical buyer agents who steer buyer clients away from listings that pay out a lower commission split than others.
This sort of decoupling of agent commissions may result in a few different scenarios:
- Some sellers will follow the traditional system of paying their listing agent a % commission of the sale, which the listing agent then splits with the agent representing the buyer
- Some sellers will opt to not pay the full commission to their listing agent but only what they feel they owe their agent for listing their home
  - In this case, the buyer party would have to compensate the agent representing them out of pocket at closing (either a percentage of the sale or a flat fee)
    - The only scenario where this wouldn’t be the case is if the buyer agent chose to work for free. 🙂

While it’s not yet crystal clear how all of this will play out in practice once this change takes effect, here’s my perspective…

Buyer agents are essential

Whether we see a future where sellers continue to pay buyer agents via pass-through commission splitting, or buyers become responsible for paying the agent representing them directly, buyer agency is essential to a smooth real estate transaction. The amount of work a good buyer’s agent does absolutely warrants reasonable compensation. Below are just a few examples of the work a buyer’s agent performs:

Brings expertise and insight to guide you through the complex real estate process, helping you make informed decisions
Provides local market information and guidance, including trends, pricing and availability, giving you a competitive edge in finding the perfect home
Simplifies your life by coordinating offers, inspection, showings, and more. We also connect you with necessary vendors like mortgage and title professionals, making the process easier
Advocates for you during the final stages of the real estate process through negotiation strategies that can lead to winning deals and smooth resolutions.

Simply put, a good buyer’s agent gives you peace of mind, knowing that a professional is there to help you navigate unexpected challenges or delays in a calm and professional manner.

Strong buyer agency laws have been in place in the state of Minnesota for over 30 years. These laws protect consumers and the standard buyer representation contract between agent and client help to ensure all terms of the buyer-agent relationship are clearly understood – this agreement includes but is not limited to compensation. Not every state has these laws or provisions, so MN is ahead of the curve in this regard.

I hope this information has been helpful to you, regardless of where you’re at on your real estate journey. Industries change. What will not change is my commitment to serving my clients – whether buying, selling, or investing – with the utmost care and transparency.

As always, please don’t hesitate to contact me with any questions or comments. I’d love to hear from you!