Working with a professional real estate agent can offer protection while giving you a competitive advantage. However, some may wonder just how they are paid and what it costs to work with a realtor. In 2024, the National Association of Realtors (NAR) reached a settlement that changes how buyer broker compensation is handled. Effective August 17, 2024, buyer brokerage compensation is negotiated by way of the Residential Purchase Agreement, and is no longer a term in the residential listing agreement. The seller is also prohibited from advertising the compensation they are willing to offer on the multiple listing services (MLS). Keep reading to learn more about the 2024 NAR settlement and what to expect during the home-buying process with a professional realtor by your side.
What happened in the NAR settlement in 2024?
The National Association of Realtors (NAR) 2024 settlement was the result of an antitrust lawsuit. The 2024 NAR settlement highlights the following changes, effective August 17, 2024.
-
The settlement delegates the buyer’s agent compensation to the buyer. The seller is no longer required to negotiate the buyer's agent brokerage compensation in the residential listing agreement, if any. Prior to the settlement, both the buyer and listing agent brokerage commissions were negotiated in the listing agreement, and often resulted in a split between the buyer’s agent and the seller’s agent.
-
The settlement states that agent compensation can no longer be advertised on multiple listing services (MLS). The MLS is a database utilized by realtors to view inventory and other data.
-
An agreement between the Buyer and the respective Broker must be signed before the agent shows any properties, and said agreement must include the negotiated buyer Brokerage compensation to be paid by either the buyer, seller or both depending on what the terms of the Residential Purchase agreement.
So, what does this mean for home buyers? You can expect your Realtor to present an agreement before starting the home shopping process. The agreement should outline what to expect when it comes to agent compensation. While the seller may not be obligated to pay the buyer’s agent compensation, they may be motivated to in order to attract more buyers. Therefore, you can still use an agent and not end up paying their commission out of pocket.
Key Changes in Buyer Brokerage Compensation
Let’s review the key buyer brokerage compensation changes and how they impact you when buying a home.
Why Did Compensation Changes Happen?
Prior to the 2024 NAR settlement, sellers could advertise a commission for the buyer’s agent on the MLS. In turn, this could entice Realtors to be more aggressive in selling a property with a higher commission, as opposed to just finding the right home for their buyer.
With a buyer-broker agreement in place, you’ll know how much compensation your agent expects. When it’s time to make an offer on a property, you can ask the seller to pay this compensation, and oftentimes they will. However, the seller can decline to or counter at a lower percentage for the buyer's agent’s compensation, making it part of the negotiation. If the seller doesn’t agree to pay buyer brokerage compensation, you will be required to compensate your agent, per the terms of the buyer-broker agreement. While the objective of the compensation changes is to protect buyers and their interests, it’s still critical to have an agent who’s truly vested in what’s best for you.
What This Compensation Change Means for Buyers
There are a few ways to manage agent fees as a buyer. Examples include increasing the sales price and asking the seller for a credit to be applied to the buyer brokerage compensation. This allows you to finance the fees into the deal. However, there may be lender restrictions; it’s best to discuss this approach with your lender before pursuing it. Alternatively, you can adjust your down payment or use cash reserves. A combination of the above ideas can also be a solution. If the possibility of a seller not paying your agent’s fees makes you uncomfortable it’s best to discuss the possibility of this prior to home shopping. Hearing your agent’s approach can be comforting.
The Buyer/Broker Agreement Explained
Real estate agents can put in plenty of time and hard work. In fact, most are not paid until you complete a transaction with their representation. Realtors use a Buyer-Broker Agreement as a means of protection for both parties. Let’s take a closer look at what to expect when signing a Buyer-Broker Agreement.
What is a Buyer-Broker Agreement?
In summary, a Buyer-Broker Agreement is a legally binding contract between you (the buyer) and your preferred real estate agent. Before showing any property, a Buyer-Broker Agreement must be signed. Overall, it serves as a promise for your Realtor to represent you and your best interests in exchange for the agreement that you will work exclusively with them. In addition, it outlines the compensation agreement between you and your agent. After all, their compensation can become part of the negotiation for a new home or the sale of an existing home. The intention of a Buyer-Broker Agreement is to provide clarity so that both parties know what to expect.
Why Is It Required Now?
Buyer-broker agreements are now required to be signed before agents start showing buyer properties. This requirement is the result of the 2024 NAR settlement. The objective of the agreement is to provide more transparency for buyers, specifically in terms of Realtor compensation. If you have any hesitations about signing the agreement, remember it’s in your favor to sign it. It’s a legally binding agreement that obligates your agent to act in your best interest, protecting both you and your agent.
The Role of Negotiation in Real Estate Brokerage Compensation
When buying a home, there will undoubtedly be negotiations, including those with your agent. When you enlist the help of an agent who is truly on your side, though, negotiations should feel fair and simple. The goal is for both parties to win.
Compensation is Always Negotiable!
While you may set compensation upfront with your agent, you can still renegotiate them down the road. Chances are, when you find a home you want to purchase, the topic may arise again when you write an offer or counteroffer. Ultimately, your agent should want to help you get the home you want. Finding the right home can often be one of the most challenging parts of home buying, especially in markets like the San Francisco Bay Area.
Should Buyers Work with the Listing Agent?
If you are unrepresented by a buyer’s agent, you can work with a listing agent for representation, but there are some things to consider before choosing this route.
The Conflict of Interest Consideration
The first thing to consider is a potential conflict of interest. The listing agent, first and foremost, works for the seller with the goal of getting them the most money for the home. In addition, their compensation can increase with a higher sales price. If you enlist the help of the same agent, you may face a potential conflict of interest. From negotiating the purchase price and terms of escrow to disclosures and additional negotiations during escrow, it can be difficult to have the same representation for both the buyer and the seller. It’s highly recommended to enlist your own trusted agent so you can buy with confidence.
Advantages of Using a Buyer’s Agent
While not always encouraged, there may be potential benefits to working with the buyer’s agent. For example, they may be willing to reduce their commotion since they are representing both the buyer and the seller. This means, essentially, they are earning two commissions on one deal. If they are willing to reduce commission, you can potentially lock in the home for a lesser price or save on out-of-pocket expenses.
Navigating the New Real Estate Norms
Purchasing a home is not only a big financial commitment, but there is a legal aspect involved too. From things such as unpermitted additions to flood and fire zoning, there are many things your Realtor can help you navigate. While avoiding the use of a Realtor may sound like a way to save money, in reality, it may cost you money in the long run. A qualified and trustworthy agent can help you navigate the real estate market, educating you on the norms along the way. As an expert in the market, they can also help you find just the right home for the right price. There’s so much value to be offered by working with a real estate agent. Finding an agent that you trust and feel comfortable with can make all the difference on your home-buying journey.
Daydreaming about owning your own home in a city you love? Contact Darlene Perry to turn the dream into a reality!
