The NAR Settlement – What to Know

Intro

Throughout 2024, news related to real estate has been buzzing, but this time, for reasons other than home prices or market conditions. On March 15, the National Association of Realtors, or NAR, settled on a lawsuit that alleged that the system for broker commissions contained flaws that required reform. With the settlement, we will indeed have some reforms. There may be more forms and more to consider in a transaction, but worry not! The Waldren Team is here to explain what’s new, and to reassure that despite it all, it’s still all about buying and selling a home and paying the appropriate people.

How it Worked Before

Prior to the settlement, sellers essentially footed the bill for commissions. This would be configured in the closing statement, the agreed upon commission amount was debited on the seller side, and the amount would be allotted to the listing and selling broker(s) (usually 50/50 but not always).  The major takeaway to this method centered around the fact that the seller took all financial responsibility for funding brokers; the perception that emerged from this and ultimately led to the lawsuit concerned the idea that this was unfair to the seller, as the other party to the sale (the buyer) did not contribute to the commission.

Concession vs Compensation

When looking over settlement details, two terms referring to payment receive frequent mention – compensation and concession. While it may seem like these terms are interchangeable, a key detail creates a distinction between the two:

- The term “compensation” is used when a party pays their broker. If the buyer or seller pays their broker a particular percent of the purchase price at close, that would be compensation.

- The term “concession” is used when the one party in the transaction pays the other directly. For instance, in a seller’s concession, the seller is agreeing to pay the buyer directly.

What’s Different for Sellers

Sellers now have a crucial decision to make during the transaction process: how much, if at all, should the broker representing the buyer be paid? Sellers can also determine whether or not to provide a concession to the buyer. Sellers will need to consider all angles when determining how to proceed, and luckily we are able to help with the process.

What’s Different for Buyers

In addition to potentially paying for a portion of the commission, buyers are now expected to sign a document called an Exclusive Buyer Broker Agreement. This agreement establishes:

- The role of both the buyer and the broker

- How much the buyer is willing to compensate the broker (fully negotiable)

- How long the buyer and the broker/agent will be working together (amendable)

- The locations (normally which counties) applicable to the agreement

- Whether or not the buyer agrees to see properties where seller concession is being offered

The Bottom Line

It may seem like the earth has shaken in the world of real estate, but at the end of the day, homes are still being sold, and payment is still being negotiated and distributed accordingly. There may be more paperwork talking about agreements and compensation and concession and numerous other terms and conditions, but at the end of the day, we’re still here to guide you with your buying and selling needs. And always remember: commissions and concessions are always negotiable! Got more burning questions regarding the NAR Settlement and the industry in general? The Waldren Team is here for you! Contact us today!