Navigating the NAR Settlement: What Buyers and Sellers Need to Know
At this time last year, few had heard of a NAR settlement. In Real Estate it’s easy to get lost in the alphabet soup of it all. I’d like to break this down and simplify how it might impact you.
The NAR is the National Association of REALTORS®. This group was created in 1908 in Chicago, and it’s goals were to effectively exert a combined influence upon matters affecting real estate. Think stock exchange, but with real estate. One of the first 19 boards was near here in Bellingham Washington.
But what’s with this settlement? The NAR settled for $418 million a case that began in Kansas City as a class action lawsuit known as Moerhl and Siztzer/Burnett. Plaintiff alleged that realtors were inflating their commissions, by enforcing a mandatory rule to offer a specific compensation. The plaintiffs garnered $1.8 billion in damages, and it has prompted further suits and legal actions across the USA.
One of the key ideas behind this is antitrust law - Think price-fixing, monopolies, market allocation. No one wants to be ripped off, so it makes sense, right? Real estate, like all industries, is in a free market, and negotiation has always been, and will always be part of it.
That said, this marks a pivotal change to Washington real estate, perhaps the largest since 1997 when the Real estate Brokerage Act (REBRA) was passed. Formerly known as the Agency Law, this modernized existing regulations, and introduced safeguards and transparency for both buyers and sellers. Historically, Washington brokers primarily represented sellers, leaving buyers without dedicated representation. You could call it a layered approach - and one that didn’t provide much clarity. The introduction of the Law of Agency in 1997 expanded brokers' roles to include representation for buyers, albeit without a mandatory agreement outlining the broker-buyer relationship.
That won’t change. If anything it will become more transparent who is representing who in any given transaction. We are required to hand out the agency pamphlet and explain in detail with our clients how it impacts them.
What may change is how commission gets negotiated. In Washington, our MLS (multiple listing service) has been ahead of the curve, and made things transparent for years. But it could change. Keep in mind that commission is a negotiation. A good realtor will not only negotiate on their behalf, but will argue fiercely to protect your interests. We are a fiduciary agent.
Because our MLS is privately owned, and not a subsidiary of the NAR, we were able to opt out of the settlement. That means we can do things that have already been working for us. Protecting your investments by communicating well.
What will change, or in fact already has, is that buyers will now need to enter a buyer representation agreement. In a way, they will have to approach the transaction more like a seller, get to know, and choose a realtor, based on their education, knowledge, personality, and experience. Buyers, like sellers, will need to sign an agreement. Previously, when my mom was a realtor, buyers did not need this – they could follow an agent through properties, and when they were ready, choose an agent to then make an offer. This is no longer the case. The intention behind the shift is for buyers to receive dedicated representation, and clarity in their real estate transactions.
In personal opinion, this means buyers are going to be taken more seriously. In fact, despite the fact that this is by definition a “Sellers Market,” it seems buyers have more of a voice than before. Seller concessions are up, and more properties are selling below listing price. For most folks, buying a home represents the largest financial investment they will make. It’s important to have someone advocate for you along the way.
To Sum Up What Does The NAR Settlment Mean For You?
Buyers: Starting January 1, 2024, you must engage in a Buyer Broker Services Agreement early in your real estate journey. This agreement allows you to define how your broker represents you, negotiate compensation terms, and filter property listings accordingly. You can still fire them if it’s not a good fit, but you have to make the choice before you even enter a home. It enhances you have a champion, or at least an individual who will prioritize your journey, and offer clear guidelines throughout the real estate transaction.
Sellers: These updates grant sellers greater flexibility in negotiating compensation rates offered to buyer brokers, fostering a more competitive and informed market environment. Buyers and their brokers now have the ability to negotiate terms more actively, influencing the listing process to align with agreed-upon compensation structures.
Ready to navigate these changes in Washington real estate with confidence? Whether you're buying or selling, I'm here to guide you through the process. Let's discuss how I can advocate for your interests and ensure a smooth transaction. Contact me today to get started!
