Understanding the NAR Settlement: Key Takeaways and Insights

by Emily Klingler | 4 min. read

Although it won’t be finalized until later in the year, the recent settlement by the National Association of Realtors (NAR) has already restructured how commission fees are negotiated, and buyers, sellers, and industry professionals are asking questions about what to expect from their next real estate transaction.

The terms of the settlement focus on the cooperative compensation model utilized on MLS systems, however the required changes will impact the entire U.S. real estate market. Realtors and Brokers are already being trained in new NAR requirements and procedures, and buyers and sellers are rethinking their roles and responsibilities within real estate transactions.

This blog post will break down the following key takeaways of the NAR settlement and provide insight into how best to navigate the new regulations.

• Increased Transparency
• New Negotiation Dynamics Between Buyers and Sellers
• Long-Term Benefits for Consumers
• Importance of Choosing the Right Brokerage

The most significant change brought about by the NAR settlement is the push for greater transparency in real estate fee structures. Commission fees have always been a part of real estate transactions and have always been negotiable. However, the commission process will now command a more open discourse of the fees related to each side of the transaction from the start.

On the buyer side, buyer agents will now sign representation agreements or fee agreements with buyers prior to touring a property. A practice that has already been in place in several states, these agreements outline the professional services that will be provided by the agent as well as their associated costs. This step allows buyers to make better informed decisions regarding their choice of representation and creates an opportunity for licensed agents to showcase the value of their knowledge and experience.

For sellers, this change is primarily about clarity and openness rather than a fundamental shift in fee structures. Sellers are still able to extend compensation offers, but the process and disclosure of these amounts will be more transparent. These changes do not affect the motivation or practice of cooperative compensation, which still holds true as a powerful selling point within a competitive market.

Both buyers and sellers, as well as landlords and tenants, now have the opportunity to negotiate their respective agent’s portion of fees for professional services before they are rendered. For tenured agents and brokers this is an ideal opportunity to market their years of industry knowledge and professional insights. For newer agents and brokers this may be a potential challenge, as buyers may hesitate to enter into a contract with an unknown agent.

Buyers may also be influenced during negotiations by the potential issue of financing if the burden of paying the buyer agent commissions falls to them. Typically, lenders do not provide loans to cover closing costs and additional fee expenses, a major hurdle for buyers who lack additional capital beyond what is already needed for closing costs and down payments.

Sellers have always benefited from offering to pay buyer agent commission fees, so they may not automatically be paying less under the new settlement requirements. However, the new dynamic has shifted negotiation power slightly between parties. If a seller offers a cooperative broker fee higher than what the buyer agent agreement stipulates, the difference will now be a negotiating opportunity for the buyer to reduce the price, ask for cash back, or even increase the fee to the buyer agent.

Despite uncertainties and challenges of the initial adjustment period, the NAR commission changes are expected to bring long-term benefits to consumers. The increased transparency allows for a clearer understanding of real estate fees for buyers and sellers. Consumers are empowered with more negotiation power, a shift potentially leading to more competitive pricing in the industry.

However, consumers should be aware of potential downsides. A buyer’s ability to finance additional costs for brokerage fees poses not only a challenge to the buyer, but also a concern for sellers as it could subsequently result in a change to the perceived value of their property.

These changes may slow down sale activity, as all parties become more familiar with the new commission fee landscape. However, this slowdown is likely to be a temporary part of the overall process, and the market is expected to adjust and regain its momentum.

In light of the NAR settlement agreement, the importance of choosing the right representation cannot be overstated. The restructuring of commission fees should push sellers and landlords to consider their options, and buyers and tenants to be more cautious and thorough in their research when selecting an agent and negotiating commission fees.

Real estate professionals continue to be essential resources when selling or leasing property, and now more than ever the quality of their services will make the biggest difference when signing with a client. Access to real-time market knowledge and insights, networking resources and relationship-based business models are invaluable commodities that ROCK Commercial Real Estate offers clients so they can make confident, informed decisions that are right for them.

The NAR commission settlement represents a significant shift in the real estate industry, promoting transparency and empowering consumers. While it may require some adjustment for all parties, the long-term benefits are expected to outweigh the short-term challenges.

In this evolving landscape, the need for a trustworthy advisor with your interests at the forefront has never been more critical. ROCK’s in-house research team and database, live feed access to market trends and statistics, extensive network of professional relationships, and commitment to client success position us as an ideal partner in navigating any real estate challenge or transaction.

Whether buying, selling, or leasing, the complexities of this new era in real estate don’t have to be overwhelming. Reach out to ROCK today, and let us work on finding the best solution for you.