A Concise Understanding the Recent Changes in Real Estate Practices
The real estate industry is experiencing significant changes
due to a recent legal settlement involving the National Association of Realtors
(NAR). These changes, which take effect on August 17th, are not the result of
new legislation but rather the outcome of a legal agreement designed to address
concerns about transparency and fairness in how real estate commissions are
handled. While these changes are not laws, they are a condition of doing
business with a Realtor® and listing a home on a Multiple Listing Service
(MLS). Real estate agents who are not Realtors® do not have to comply with
these requirements.
Background of the Legal Case
The catalyst for these changes was the Moehrl v. National
Association of Realtors lawsuit, filed in 2019. The lawsuit challenged
longstanding practices in the real estate industry, particularly how
commissions were disclosed and shared between buyer's and seller's agents. The
plaintiffs argued that these practices were anticompetitive and led to inflated
costs for homebuyers. To resolve these concerns, NAR and other defendants
reached a settlement that mandates changes in how commissions are handled,
particularly within MLSs.
Key Changes from the Settlement
- Commission
Disclosure on MLS: Under the new rules, the traditional practice of
disclosing commission offers on MLS listings is prohibited. This change
aims to prevent potential steering by agents towards listings offering
higher commissions. Instead, commission agreements must now be handled
separately between the involved parties, outside of the MLS.
- Requirement
for Signed Representation Agreements: Buyers’ agents must now secure a
signed representation agreement before showing a property to a prospective
buyer. This ensures transparency and establishes the terms of the
agent-client relationship from the outset.
- Commission
Negotiation: While commissions remain a necessary part of most real
estate transactions, the new rules emphasize that these fees are
negotiable. Sellers and buyers must now have a clear, documented agreement
on how commissions will be paid, separate from the MLS listing.
Impact on Buyers and Sellers
For buyers and sellers working with real estate agents who
are members of NAR, these changes are mandatory. While the overall structure of
real estate transactions remains largely the same, the process of negotiating
and disclosing commissions has become more explicit and must now occur outside
the MLS system.
- Sellers:
If you’re selling your home, you are not obligated to offer a commission
to the buyer’s agent. However, if you want your property to be shown to
potential buyers by agents who represent buyers, it’s in your interest to
offer compensation. Most buyers prefer to work with their own agent,
separate from the seller’s agent, to ensure their interests are fully
represented.
- Buyers:
As a buyer, you will likely continue to work with a dedicated agent who
represents your interests in the transaction. The cost of the agent’s
services is now more clearly separated from the listing process, with an
emphasis on direct negotiation and transparency.
Conclusion
While these changes might seem significant, the fundamental
aspects of real estate transactions remain unchanged. Commissions still need to
be paid, and most transactions will continue to involve separate agents for
buyers and sellers. In my opinion, the Seller will still be looked upon to pay
the total commission. The primary difference is how these commissions are
disclosed and negotiated. For those involved in real estate transactions after
August 17th, 2024, understanding these changes is crucial to navigating the
process effectively.
In summary, these adjustments reflect a broader trend toward
greater transparency and fairness in the real estate industry, ensuring that
all parties are clear about the costs and responsibilities involved in buying
or selling a home. As always, working with a knowledgeable real estate agent
remains key to successfully navigating the market.
This blog aims to provide a clear and concise overview of the recent changes in real estate commission practices, helping both buyers and sellers understand what they need to do to comply with the new rules while ensuring their transactions are as smooth and successful as possible. This not legal advice. for a legal understanding consult your attorney.