Understanding the recent National Association of Realtors settlement establishing new rules for brokers
Understanding the recent National Association of Realtors settlement establishing new rules for brokers
Recent consumer class action lawsuits and Department of Justice guidance are changing the way residential real estate commissions are negotiated and paid.
Changes to Broker and Agent Compensation
A recent national class action settlement is set to transform the traditional compensation structure in residential real estate starting August 17, 2024.
Why it matters: This shift means that sellers will no longer offer set compensation to the buyer’s agent through their listing broker. Instead, all agents representing buyers must have a written agreement with the buyer outlining compensation and terms before showing any homes.
The big picture: The change aims to create a more transparent and competitive environment in real estate transactions. It is expected to reshape how buyer and seller agents negotiate their commissions.
What’s next: Agents and buyers need to familiarize themselves with the new requirements and ensure compliance to avoid legal issues. Buyers should discuss compensation terms with their agents upfront.
New Buyer Agreement Requirements
In California, buyers must now sign a representation agreement with an agent before being shown a home by that agent. Visiting an open house without an agent will not require a representation agreement, but hosting agents may ask visitors to sign in and identify their status as a buyer.
Why it matters: Under California law, the new buyer agreements can be exclusive for up to 3 months, committing the buyer to compensate the agent if a home is purchased within that period. Alternatively, it can be limited to specific properties, allowing buyers to engage multiple agents.
Details: Buyers may continue to start their home search online or by visting open houses without an agent or agreement.
• But, if a buyer seeks guidance from an agent an agreement must be made before a buyer tours a house with an agent.
• The agreement between Buyers and their agent must clearly state the amount of compensation and the terms of representation.
• While the Buyer is responsible for the fee, it is likely that offers will ask the Seller to pay Buyers’ agent fees out of the proceeds of the sale.
What’s next: Buyers and Agents need to become accustom to a new world where a written commitment replaces the previous casual relationship between the parties.
New Seller Fee Requirements
Sellers no longer need to offer a fixed commission to the buyer’s agent under the new rules.
Why it matters: Sellers will now only negotiate their side of the commission with their listing agent. This change simplifies the process for sellers and potentially lowers their costs.
Details: When offers are made on the property, sellers may see requests from buyers to cover their agent’s commission. These amounts can vary based on the agreement between the buyer and their agent.
What’s next: Sellers should be prepared cover buyer’s commission requests. If a Seller chooses not to, that would force a buyer to use their own funds to pay their agent and may reduce their buying power by lowering the amount of cash they have available for a down payment.
Seller Compensation and DOJ Guidance
While the class action settlement does not explicitly prohibit sellers from offering compensation directly to the buyer’s agent, the Department of Justice (DOJ) views this practice as anti-competitive.
Why it matters: The DOJ has warned that offering seller compensation to the buyer’s agent can contribute to fixing commission prices at artificially high levels. This practice is seen as detrimental to a competitive market.
Details: The California Association of Realtors has removed the offer of seller compensation from their standard forms to align with these guidelines and promote transparency.
What’s next: Sellers and agents should avoid practices that could be viewed as anti-competitive and ensure compliance with the new regulations. Staying informed about evolving guidelines and legal interpretations is essential.