There is so much noise in the media about the NAR Lawsuit and unfortunately they are not giving the clear facts to the Homeowners and Buyers that may have real estate needs in the near future. I will attempt to simplify this as much as possible in this article. 

Please if you have any questions as to how this may affect you, don't hesitate to reach out.  As a disclaimer, I would like to make it clear that I am not an attorney and am explaining this to you as best as possible with the information I have received from the National Association of Realtors, my local Real Estate Board and my peers. 

First, please note that as of this writing on March 27, 2024, the NAR Settlement has not yet been approved, which means that today, the way business has been done in your market is the way it continues to be done.  While the settlement is clear in what it says, please know that there are still many questions about how these changes will work in practice.

Let's be clear:  NAR is still working through how these changes will be implemented and what best practices will emerge.  We currently expect this to happen sometime after mid-July.  Many opportunists will jump to quick conclusions and provide their opinions disguised as knowledge.  Be aware that this can be both legally dangerous and professionally irresponsible.

Here is what has happened:

1. Cooperative compensation cannot be entered into the MLS listing.  But we are being told we can add it to our websites, advertising, or other marketing - only for our own listings.

What does this mean? 

Basically, the way it has always been when we meet a seller to enter into a listing agreement to market their property, we discuss the compensation that will be offered to the listing agent and the selling agent.  This has always been negotiable between the listing agent and the seller. (unlike the media claiming it was fixed). The listing agreements we use in Florida have the total commission amount as one line item, and then further down in the agreement, we enter the portion of that total amount that will be used to compensate the cooperating brokerage for bringing a buyer that closes on the property.  Most often, it is another buyer agent that will bring the buyer to the transaction due to our marketing efforts. The marketing efforts are to get the property in front of as many people as possible (and many of them are working with another agent already).

It also means that there will be a good number of agents who just try to get listings by offering cut rates and services to the sellers.  They will also tell them they don't have to pay the buyer’s agent and that this will save them thousands of dollars. They won’t share the pitfalls of doing this. For instance, the buyer pool will be cut dramatically.  You will see how this may happen as you keep reading.

What are the pitfalls? 

Since the buyer agent cannot see which properties are offering compensation on a property, we would now have to call each listing agent to find out if the seller is willing to compensate a buyer’s agent. Although this can’t be stated as such.  It has to be noted that the seller is willing to pay concessions towards the buyer’s closing costs.

Sellers can still offer a concession to the buyers in the MLS and that concession can be used to pay the buyer’s agent should the buyer choose.  Keep this in mind as we move on to the second big change.

2.     A buyer MUST sign a buyer representation agreement before a realtor can show them a home.  While this was something mandatory in a lot of states, Florida was not one of them. But now it is mandatory in every state. 

The buyer representation agreement MUST include these 3 things:

1. It must disclose the amount or rate of compensation the buyer agent will receive.

2. The compensation amount must be written into the agreement as a percentage or a dollar amount and cannot be open-ended. 

3. The buyer agent cannot receive compensation for services from any source for more than the amount or rate agreed to in the agreement.

So now let’s examine the implications of these two major changes.

There may now be a fair amount of homes on the market in which the sellers are not offering compensation to the buyers agent (in the form of seller concessions). If a buyer barely has enough money for closing costs and their down payment, now they may also be on the hook for their agent’s fee.  Unless of course, the seller is offering seller concessions.  If the buyer instructs his agent to inform him of which homes may not work with them so they can get concessions back to pay their agent, they can and may choose not to see that home as they cannot afford it. (remember, the buyer agency agreement must be signed prior to viewing any homes).  This will present problems for the sellers as their home may not be as marketable. 

If the seller is offering concessions and the buyer is interested in viewing it, they first have to confirm that the amount of concessions offered will cover their agent’s fee since it has to be written into the agreement and cannot just state “whatever the seller is offering”.  If it doesn’t, they may be obligated to pay the difference.  We are still waiting to hear how negotiable we can be with this. 

The second problem with this is buyers often seek help with closing costs from seller concessions to begin with.  Or they may request concessions due to repairs that are needed.  Now they may have to be used for buyer agent compensation.  Depending on the type of financing, there are limits to the amount of seller concessions allowed.

FHA – 6% cap on seller concessions towards closing costs but not to exceed the amount of their down payment which is usually only 3.5%.

VA – 6% cap on closing costs concessions.  VA buyers are not allowed to pay for their realtor out of pocket so if they can’t get concessions that can be used towards that, they cannot qualify for that house.

Conventional – 3% cap if the buyer is putting down 10% or less.  6% cap if they are putting down more than 10%.

Lenders will not allow their realtor's fee to be financed. So Buyers are left out in the cold.

Then there’s the buyer who will say “no problem”, I will just go straight to the listing agent. Another huge pitfall – dual agency.  Florida prohibits dual agency because it is impossible for a real estate agent to act in the best interests of both a buyer and seller simultaneously.  If you are a savvy buyer and understand all the ins and outs of a real estate transaction and the many situations you may run into, this may be an okay choice for you.  But for the majority of buyers out there, they need and want their agent to provide them with representation – someone whose sole loyalty is looking out for their interests only.  They want them free to fully advocate and negotiate for them, and disclose anything they are able to discover throughout the process. They need someone to watch the timelines!  Buying a home is one of the biggest financial decisions most people make.  A buyer needs representation.  In addition, listing agents are not going to work for nothing either.  There’s already been talk of charging flat fees to write the contract but they have a fiduciary obligation to the seller.  Their job is to represent the seller and get the most money possible for them with the best terms. They will not be able to help you review inspection reports, fight for repairs to be done, watch that your financing timelines are being met, etc.  They are not obligated to disclose every little thing about the house or point out defects you might not see on your own.

So as you can see, there is a lot more to this than what you may have been hearing on the news. There's still a lot that has to be worked through but for now, this is the best simplified version I can give you. This could be detrimental to both buyers and sellers in the real estate market especially if they don't have a clear understanding of everything. 

If you have questions, please reach out to me at 954-464-5434 or Linda@CrossroadsRealtyTeam.com and I will be happy to do my best to help you.