If you’ve been keeping up with the latest news, you’ve probably heard about a major shift in how real estate transactions are conducted nationwide. Today, we’re exploring a crucial development that will now impact both buyers and sellers: the recent National Association of Realtors (NAR) settlement. Whether you are a veteran investor or purchasing your first home, these changes are significant and will likely influence your buying or selling experience and decisions.
What Exactly is the NAR Settlement?
The NAR settlement is a legal agreement involving the National Association of Realtors (NAR) that addresses concerns about anti-competitive practices in buyer-broker commissions. The settlement mandates several important changes designed to increase transparency and fairness in real estate transactions. Key among these changes is the requirement for buyers to sign a Buyer’s Broker Agreement before being shown any properties. This shift also places some financial responsibilities directly on buyers, making it necessary for them to negotiate the fees to be represented by a real estate agent with either the sellers or their real estate agent. Prior to the settlement, commissions were handled between the seller’s agent and the seller, with the overall commission percentage split between the seller’s listing agent and the buyer’s agent to incentivize showing the property. These commissions ranged on average between 5-6%, often split evenly at about 2.5-3.0% between both agents. It is important to understand that this is not a local occurrence but is happening nationwide. Placing the responsibility of the buyer agent commission with the buyer will fundamentally alter all the real estate transactions.
New Rules for Buyers: The Buyer’s Broker Agreement
If you’re looking to buy a property, you must now sign a Buyer’s Broker Agreement in order for a buyer’s agent to show you any properties. This is no longer optional; it’s now a requirement. Previously, you could meet an agent at an open house or through other means, and they could show you properties without any formal agreement. With the new NAR settlement, this casual arrangement is no longer possible. Real Estate agents are now required to have a signed buyer representation agreement before showing any listings. This change is designed to formalize the relationship between buyers and their agents, ensuring that both parties understand their obligations and any associated costs upfront. This includes clear disclosures about how an agent’s commission is paid and who is responsible, allowing buyers to make more informed decisions.
How Does This Affect Commissions?
Historically, the seller has borne the cost of paying commissions to both their own agent and the buyer’s agent. The new settlement introduces a significant change: buyers now have a more direct role in compensating their agents. This means that when you sign a Buyer’s Broker Agreement, you agree to be responsible for your agent’s fees—whether those fees are for property showings, negotiations, or other services. Sellers traditionally pay their agents from the proceeds of the sale, but how this will play out with buyers compensating their agents is still to be determined. Well-informed sellers recognize that being receptive to a buyer’s negotiation to offer to pay some or all of a commission to the buyer’s agent can still be a smart strategy to sell their property quickly and efficiently. The good news is that if a seller were to make a payment towards buyer agent commission, it would not count towards the financing concession limits imposed for a seller to contribute towards buyer closing costs (per Freddie Mac and Fannie Mae). One important thing to note is that Fannie, Freddie and the FHA were also clear that buyers could not include commissions in their mortgage. This means that the buyer will need to have extra cash to pay for their agent’s commission OR they would need to increase the purchase price to include the commission to align with negotiations for the seller to pay some or all of the buyer agent commission.
Negotiating Agent Fees
Negotiating with the seller to cover your agent’s fees as part of your offer remains a viable possibility because most sellers anticipate these costs and price their homes accordingly. Essentially, the money for these commissions is often already factored into the home’s listing price. If the seller refuses to cover these fees, you have the freedom to walk away from the deal, just as you would if a seller were unwilling to make necessary repairs. You’re not locked into the deal; you still maintain control.
Maintaining Control of Your Real Estate Journey
It’s important to remember that you’re not paying your agent by the hour. The agent’s fee is settled at closing, and if you’re uncomfortable with the terms of a deal, you’re free to move on and continue your home search. You as a buyer have the right to negotiate better terms on the next property without feeling pressured to proceed with a deal that doesn’t align with your interests.
While these changes may seem overwhelming at first, they are designed to empower you as a buyer, providing greater transparency and clarity in your relationship with your agent. Sellers, too, will need to adapt to these changes, but prepared sellers will understand and be open to the new rules of negotiation.
To sum it up, the NAR settlement brings several key changes that will impact both buyers and sellers in real estate transactions. These adjustments aim to create a more fair and transparent process for everyone involved. As these changes unfold, stay informed, and don’t hesitate to reach out if you have questions or need further clarification.
For more insights and updates on the evolving real estate market, make sure to follow us and stay tuned for our next post. We’re here to help guide you through these changes and ensure you’re well-prepared for your next real estate transaction!
Stay informed, and happy house hunting!
KeyOpp Real Estate
Kelvin Kam, the Broker of Record for KeyOpp Real Estate and Founder of Sequoia Real Estate, stands out as a pragmatic leader in the real estate domain. Since embarking on his journey in 2003, Kam’s trajectory embodies a strategic fusion of foresight, diversification, and an unwavering commitment to excellence.
Karmen Wong’s journey to real estate was inspired by her positive experience buying a home with her sister over two years ago. Their agent, who was patient and knowledgeable, made the transaction feel like a breeze. This experience, coupled with her Aunt’s belief in real estate investment, ignited Karmen’s interest in pursuing it as a career. She is driven by the opportunity to help others through one of the most significant transactions in their lifetime.
Eileen Chau’s journey to real estate was inspired by her childhood experiences in a family business and frequent relocations, fostering an intrigue for architecture, interior design, and negotiation styles unique to different cities. This diverse background naturally led her to become a real estate agent, where she could seamlessly merge her passions.
Letty, a proud native of San Francisco, brings a wealth of diverse experiences in her role as a Realtor. Having lived in neighborhoods such as Crocker Amazon, Ingleside, and Sunset and attended schools in Chinatown, Mission, Balboa Terrace, Parkside and Park Merced, she offers direct knowledge and experiences of the vast communities in San Francisco.
Katrina embarked on her professional journey as a Digital Marketing Specialist in Real Estate right after graduating in 2019 with a Bachelor of Arts in Business Administration, majoring in Marketing Management. Her role sparked a passion for creativity and learning in real estate advertising, aligning perfectly with her business-minded nature and aspirations to own a business one day. With five years of experience under her belt, Katrina is particularly drawn to the ever-evolving nature of marketing, which challenges her to continuously learn and adapt to new technologies.
I began my Real Estate career in 2020 as a Compliance Transaction Coordinator. I was their very first virtual assistant. As a pioneer, I finally became team leader.
I’m a Realtor, Investor, Developer, and a Mother of two children. I’ve project-managed over $40 million in residential developments in San Francisco and the Bay Area. I am originally from Vancouver, Canada and moved in 2000 to the Bay Area where I began in Commercial Banking and then Title & Escrow Sales. Furthering my passion in Real Estate, I purchased my first out-of-state investment property in 2003, and first home in 2005, I’ve learned the meaning of cash flow, and since then have rehabbed and lived in multiple duplexes and single family homes in San Francisco. I love the multi-facets of Real Estate investing, and sharing this knowledge with friends so that we can all grow together and reach financial freedom.
With over 30 years of real estate experience, Lawrence brings a family-focused approach to Real Estate. Starting early on by assisting his father with hands-on repairs and maintenance with various properties and later assisting with the backend operational processes, Lawrence along with his wife Melanie Leung have a developed multiple businesses focusing on all aspect of Real Estate including, but not limited to, Property Management, Investment Strategies as well as Buyer and Seller Representation. By working in multiple aspects of the real estate process, he brings a multi-faceted perspective to the buying and investment process. As a duo team with a strong knowledge of property investment, Lawrence is able to provide all the necessities an investor needs to make the smart choices.
Having grown up with parents working in real estate, I found my passion for this industry at an early age. I chose to follow in their footsteps after seeing how many clients they were able to help fulfill the American Dream of Home Ownership. After 7 years of working extensively in the San Francisco Bay Area, I have developed a keen understanding of the local market and always take the time to figure out what clients really need from me as a professional real estate broker. I take pride in serving my clients with the utmost level of care and professionalism. It is my job to ensure a smooth, worry-free, and satisfying experience for everyone involved.