The Settlement Agreement - What You Need To Know
National Association of Realtors
The Settlement Agreement - What You Need To Know
At The Mavins Group, we believe in keeping our clients informed about the latest developments in the real estate market. Recently, the National Association of Realtors (NAR) reached a significant settlement regarding broker commissions, which is poised to impact both home buyers and sellers.
This blog post delves into the key points of the settlement, explaining what remains unchanged in the home buying and selling process and highlighting critical areas you need to be aware of. We also provide important dates when these changes will take effect, ensuring you have all the information you need to navigate the market confidently and effectively.
This Blog post is split into different sections as there are key changes for both buyers and sellers in the home buying process. First, let’s take a look at how the process worked prior to the Agreement.
Previous Process
Historically, when sellers price their homes for sale, they price them knowing that they will pay the Realtor fees for both sides of the sale. This is how it worked:
Buyers came to the closing table with their personal saved funds, and many times the money from their new mortgages, that began at closing. The buyer was the ONLY party bringing funds to the closing table (unless the seller happens to owe more than their home's sales price, AKA is "upside down" on their mortgage).
The seller accepted the proceeds from the buyer, and then the seller paid the Realtors' brokers for both buyer and seller from the fees paid to them by the buyer. Then the seller paid any remaining mortgage balance, taxes, liens, other fees owed, and whatever was left was the seller's to keep.
New Process
The buyers' brokerage fees, formerly known as the "selling broker commission fees" have been renamed "seller concessions". Now when sellers list their home they may choose to price their home, including all Realtor fees into the price of their home, with the seller concession tool.
The seller directs their listing agents to offer a payment to the buyer's agents through a concession to the buyers when the final payments are made. This means the buyers do not need to bring funds to the table separately to pay brokerage fees. The buyer comes with their deposits and funds they receive through their mortgage, or additional cash if a cash purchase.
However it is an option for sellers to offer buyer concessions. Sellers may choose to have the buyers pay their own buyers' broker fees, separately from paying for the house. Buyers will most likely find this adjustment in fee payment reflected in the pricing of the listing of the home.
Whether or not the seller is offering a concession or not, the buyer ultimately is still paying for both buyer and seller broker fees. The buyer fees are still the money distributed to all parties at the closing table. Before the buyer paid both broker fees through their house payment within their mortgage or via an all-cash payment. Now buyers may need to bring separate funds to the closing table if they cannot afford to roll the fees into their mortgage.
Key Points For Home Buyers
Now, let’s take a look at three important aspects of the home buying process that don’t change under this settlement.
Real Estate Agents are here to help you during the process of buying your home and are ethically obligated to work in your best interest.
You have choices. At The Mavins Group, we will work with you to help you understand the full range of these choices when buying a home, which will help you make the best possible decision for your needs.
You do not need a written agreement if you are just speaking to us at an open house or asking us about our services.
What Do The Changes In The Settlement Mean for Buyers?
While there are many fundamentals of the home buying process that remain unchanged, there are several areas that are changing in August 2024. We have laid those out below to help you understand what you can expect when you look to buy a new home.
You will need to sign a written agreement with your agent before touring a home
Before signing this agreement, you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much.
The buyer agreement must include four components concerning compensation:
A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive or how this amount will be determined.
Compensation that is objective (e.g., $0, X flat fee, X percent, X hourly rate)—and not open-ended (e.g., cannot be “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).
A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer; and,
A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
Written agreements apply to both in-person and live virtual home tours.
Information is shared on a Multiple Listing Service (MLS)— MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale
You can still accept concessions from the seller, which can be used such to pay your closing costs and buyers brokers fees.
These practice changes went into effect on August 1st in New Jersey.
Now let’s take a closer look at how the changes detailed in the settlement will impact those who are looking to sell their home.
Key Points For Home Sellers
The following list of key points will remain unchanged for home sellers.
Real Estate Agents are here to help you during the process of selling your home and are ethically obligated to work in your best interest.
Compensation for your agent remains fully negotiable and if your agent is a REALTOR®, they must abide by the REALTOR® Code of Ethics and have clear and transparent discussions with you about compensation. what you would like to offer buyers.
You have choices. Work with your agent to understand the full range of these choices when selling your home, which will help you make the best possible decision for your needs.
What Do The Changes In The Settlement Mean For Sellers?
As a home seller, you have a wide range of choices when it comes to listing your home. Real Estate Agents are a trusted source of advice and stand ready to help you navigate this complex process and make the choices that work best for you. NAR’s recent settlement has led to several changes related to broker commissions, they are detailed below:
You still have the choice of offering compensation to buyer brokers and you may consider doing this as a way of marketing your home to make your listing more attractive to buyers.
Your agent must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.
This disclosure must be made to you in writing in advance of listing of your property and prior to any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.
If you choose to approve an offer of compensation, there are changes to how this can happen.
As the seller can still make an offer of compensation, but your agent cannot include it on a Multiple Listing Service (MLS)—MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
Your agent can advertise your listing via off-MLS platforms such as social media, flyers and websites.
You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs). These settlement practice changes go into effect August 1, 2024 in New Jersey and on August 17, 2024 across the country
How The Mavins Group Can Help
At The Mavins Group, we leverage our extensive knowledge of the real estate market and access to a wide range of resources to guide both buyers and sellers through the recent NAR settlement agreement.
Our team stays up-to-date with the latest industry changes, ensuring you understand how these developments impact your transaction. Whether you're navigating the nuances of broker commissions or adjusting to new market dynamics, we provide expert advice and personalized strategies to help you achieve your real estate goals smoothly and successfully. Trust The Mavins Group to be your reliable partner in this evolving landscape.
Conclusion
In conclusion, while the recent settlement by the National Association of Realtors brings changes to the broker commission landscape, it doesn't alter the fundamental aspects of buying or selling a home. Staying informed about these developments is crucial for both buyers and sellers.
The Mavins Group is here to help you navigate these changes with confidence, offering expert guidance and comprehensive resources to ensure a smooth and successful real estate transaction. Contact us today to learn more about how we can support you in this evolving market.