The Truth About the NAR Settlement Agreement
There’s much the media has gotten wrong about NAR’s settlement, which would require the association to pay $418 million over four years. Some outlets have suggested that NAR previously set or guided commissions to a standard rate of 6%. [1]
The National Association of Realtors lawsuit brings light to a number of business practices and aims to change how properties are advertised, how agents are compensated, and how consumers are made aware of who is representing them. If the settlement is passed, changes will go into effect in July. Between Now and July NOTHING IS CHANGING in how NYC real estate is conducted.
About the Settlement:
The settlement speaks about the usage of Multiple Listing Services in various states. An MLS, is a unified listing service prevalent outside of NYC. It is a service that all brokerages subscribe to, and it is a neutral service that ensures all property information is entered uniformly and accurately. There is no MLS in NYC. In fact for years, top brokerages have been fighting and trying to fund their own websites to become THE SOURCE of all data and property information. It has been an expensive battle to private websites like Streeteasy who have captured the eyes of so many consumers and have become the default property search engine. The bad thing about streeteasy, is they sell consumer data and rely on the brokers in NYC for all their listings. Without real estate agents posting on the site, the website would not exist.
Commissions Advertised
This settlement says that advertising buyer's broker commissions cannot be listed online or on the MLS.
This is actually helpful because websites like streeteasy/zillow intercept buyer emails on certain properties and sell the data as a "direct buyer lead" to agents who aim to persuade the buyer to work with them. If a buyer's agency agreement becomes a widely supported service agreement for agents who specifically represent buyers, I believe this will create more transparency and weed out the agents who are operating to the highest standards. In my experience, sometimes these buyer's agents who have purchased a "lead" online, are representing buyers for the first time, they have no prior work experience, and they can seriously mislead a consumer throughout the sale process. In fact, sometimes these buyer's agents meet a buyer for the first time at an open house, and have no knowledge of the surrounding area, comps, or the property they are entering into. The best way to meet your broker is to be recommended to one by a friend/family or their past client(s).
Commissions Negotiated
The settlement also states that Buyer's broker commissions will be negotiated with the buyer instead of being assumed to be paid by the seller.
This dismantles the REBNY universal co broker agreement most NYC agents follow. This agreement makes the practice of splitting the total commission being outlined between both the seller's agent and the buyer's agent. Typically a seller hires their broker and signs a service agreement known as the Exclusive Right to Sell Agreement. It is within this service agreement that the commission is outlined and enforced by REBNY to be split 50/50 with the procuring agent. If the NAR proposed settlement passes in the summer of 2024, the seller's agent will no longer have to compensate a buyer's agent. The news is elaborating on this element and assuming that the cost of selling your home will be cheaper.
Buyer's Representation is arguably a benefit to consumers, and aids in real estate transactions!
Buyer's Representation is tricky. It's a pro-bono job as most agents will represent a buyer without any clear terms of their services and only get paid at closing. Many states already require documents to be signed by the buyer to hire their own agent. Connecticut has been operating under this procedure for years, and in fact most buyers in Connecticut will pay their agent out of pocket to service them.
The benefits of having a broker guide you through your home buying purchase are numerous. They actively help you find a property in question, assist you with negotiations, research into any pitfalls of the property's construction or financing risks, and spend countless hours on co-op board packages ensuring you are approved to purchase in some of NYC's most coveted buildings.
Discount Brokerages have existed for years in the outer boroughs. They entice seller's that they will be able to sell their properties at a fraction of the commission cost because they are local, have a deep rooted data base that spans for 30+ years in your specific neighborhood, and have nominal costs of operation. Some discount brokerages own the office space they are headquartered in, and therefore have alternative ways of mitigating their cost of existing. Discount Brokerages are those that sell your home for 1-3% there is no advertising, no offerings that guarantee your home will sell. Usually they are understaffed, and not updated on their licensing continuing education. They may be lagging in the marketing solutions being offered, and often times do not have the national and international presence to procure a buyer for some of Manhattan’s higher end properties.
With the countries high interest rate environment, I believe real estate transactions are pivotal to each state’s local economy - as often times transfer taxes are collected from the close each sale. With interest rates deterring transactions, the NAR lawsuit is attempting to undermine the benefit of real estate brokers at the cost of not only their salaries, but also the misinformation of how vital they are to ensuring real estate trades actually happen. With out real estate brokers determining market value of a home, most seller’s would be subject to a bank’s appraisal value based on lagging data from last year. Whether you’re buying or selling in NYC, if you find a GOOD Broker, you’ll truly understand what it means to be represented.
Sources:
[1]: https://www.nar.realtor/magazine/real-estate-news/law-and-ethics/the-truth-about-the-nar-settlement-agreement