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Unpacking the Impact of the NAR Settlement on Homebuyers and Their Real Estate Agents: What You Need to Know

NAR Real Estate Agent

Like many of you, the National Association of Realtors (NAR) Settlement with Sitzer/Burnett and Moehrl cases came off as very confusing to what real estate agents, and more specifically, REALTORs can do when it comes to marketing the commission a seller is offering to a buyer's broker to co-broke a house listing. The broker commission can no longer be included with the listing in the MLS.

So how will a buyer's agent know what the commission is they are receiving for their work on the sale? There are a few ways. Before we go over how they will know, it's important to point out buyer's agents will now be required to have a signed agency agreements. In the buyer agency agreements, there is a section that discusses buyer's broker's commission. In that section a buyer and buyer's agent, will agree to what amount the buyer's broker will receive as payment. Currently buyer agency agreements are not commonly used because in most states if you are actively working with a real estate agent, you have implied agency, Therefore not needing a signed buyer agency agreement. The buyer's broker's commission was known in the MLS as well as the seller's listing agreement.

Now back to how a buyer's real estate agent will receive payment for their work:

  1. They will get paid the same as they do now, from the seller to the buyer's broker as required in the listing agreement.

  2. If a seller does not want to offer to pay a buyer's broker to bring a willing and able buyer to purchase their house, a buyer with their agent can ask for a seller's concession (a credit to the buyer from the seller) so they buyer can pay their broker's for services rendered.

  3. A buyer can pay their broker directly for services rendered.

  4. Real Estate agent does not receive payment for services.

All 4 of these outcomes assume the transaction was settled.

#1 is the what happens now, so there is no need to further explain that outcome.

#2 is similar to #1 as it asks the seller to pay for the cost of a real estate agent, but it's directly paid for by the buyer. The buyer is just "reimbursed by the seller" The issue that could arise here is when a buyer is using a certain type of mortgage, i.e. VA or FHA. The VA currently does NOT allow a buyer to pay any real estate commissions. The current rule states: "Fees or commissions charged by a real estate agent or broker in connection with a VA loan may not be charged to or paid by the veteran-purchaser. While use of “buyer” brokers is not precluded, veteran-purchasers may not, under any circumstances, be charged a brokerage fee or commission in connection with the services of such individuals. Since information on property available for purchase and financing options is widely available to the public from a variety of sources, VA does not believe that preventing the veteran from paying buyer-broker fees will harm the veteran." This could cause issues for a VA buyer. If a seller is not offering to pay a buyer's broker fee (as is currently done in the market) a VA buyer may have to forego using a real estate agent to assist them during their purchase. Of course a real estate agent could work for free, but most real estate agents need to make some sort of money to be able to survive. Even if as a result of this settlement the VA changes this rule, we also have another rule to contend with. The Four Percent Limit, "Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans. Do not include normal discount points and payment of the buyer’s closing costs in total concessions for determining whether concessions exceed the four percent limit." So if the VA ends the ban on buyer's paying a real estate broker's fee and If the buyer planned to request a concession from the seller to pay that broker fee, they are capped at 4%. Now you may say 4% sounds like enough, of course it can be acceptable to both parties to have an agreement that falls within the 4%, but what if the buyer wanted the seller to pay for part of their closing cost? That is a pretty common request in the market. So if a buyer uses say 3% of the 4% cap to pay the buyer's broker fee, they would only have 1% left to cover closing cost, and that's if the seller agrees to the max 4%. So again we can see how this change in market conditions could negatively affect VA buyers and their agents. With respect to FHA buyers, their seller's concessions are capped at 6%. Therefore they would have the same issues, just with a higher cap.

#3 has the same basic issues as #2. The added issue is the buyer will need to bring more cash to cover the buyer's broker fee as they are not receiving any seller concession. There would not be the seller concession cap concerns with VA or FHA buyers. The VA buyer would still have the paying for a buyer's broker concern.

#4 does not seem like it would happen often at all. Maybe in a few rare cases here and there. Maybe a real estate agent representing themselves.

Now it comes does to how will the market actually absorb these changes. Will a VA buyer actually have issues buying a house with a real estate agent assisting the VA buyer? If the VA buyer finds a house where a seller is paying a co-op broker commission, there should be no issues. If the VA buyer finds a house where the seller is not offering a co-op, the buyer may be able to request in their offer that the seller pay for the buyer's broker. Of course the seller could be dead set on NOT paying any co-op to a buyer's broker. What could that outcome look like? Does the VA buyer not get the house because a seller is not willing to pay for a buyer's broker commission? Does a real estate agent work for free? Does the VA buyer forego having a real estate agent assist? A change in the VA rule banning a buyer from paying any buyer's broker fees could at least help if not fully solve this issue. I know the VA's current stance is, "VA does not believe that preventing the veteran from paying buyer-broker fees will harm the veteran." Since this has not been an issue paying a buyer's broker prior, we don't have any data to support their claim one way or the other currently. Time will tell.

This whole settlement is currently just a proposal agreed to by both sides. It still needs to officially be approved by the federal judge. If approved as proposed, it would go into effect July 2024. If there are any changes, it could affect any of the different outcomes above.

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