What’s ahead after the NAR Settlement lawsuit regulations go into effect?
August 17th is a big day in the world of real estate! There will be a few major changes to the real estate industry in just a few short weeks.
First, let’s talk about what isn’t changing and has been in place for decades.
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- Realtor commission rates are negotiable and have always been negotiable. As agents we set our rates.
- Sellers have previously had the option to offer cooperating buyer agent compensation, or not.
- A buyer’s agent was never really “free” (it was common to hear that type of language on social media over the past several years). In MN, buyer representation contracts clearly state the buyer’s agent commission and that the buyer is responsible for the commission. But, if a seller was offering a cooperating buyer agent’s compensation, it would then reduce the amount owed directly from the buyer to their agent. So, traditionally, in most cases previous to August 2024 a buyer was not on the hook to pay for their agent directly out of pocket.
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I also think it’s important to briefly highlight the pay structures of most real estate agents. As licensed real estate agents, we must hold our license at a real estate company, aka a brokerage. You will see the term broker or brokerage in all MN real estate forms and this can be confusing for folks! Technically, when you hire an agent you hire the brokerage they work for. Agents act as representatives of their brokerage. Typically, agents have a “split” with their brokerage – most brokerages have fees associated with being at their company. These fees show up in compensation splits (i.e. the brokerage takes “X” percentage of your commission per sale – this is the most common structure) and/or monthly tech fees, desk fees, and marketing fees, etc. After the agent pays the brokerage split and miscellaneous fees, they must also pay their own estimated taxes, and any other business expenses they incur for being self-employed!
Okay, enough rambling, let’s talk about what is changing on August 17th, 2024!
1.) Real estate agents must have a signed Buyer Representation Contract in place before showing anyone a property. This change will protect agents and consumers alike. I believe we will start to see the use of shorter Buyer Representation Contracts instead of the more standard longer periods (i.e. 6 months).
If a customer reaches out to an agent, they may enter into a Buyer Representation Agreement for a showing of a single property, for a weekend, or several months.
2.) Compensation of any kind will be automatically removed from the MLS. Going forward, compensation cannot be listed or mentioned anywhere on the MLS or supplements (aka back-end documents) for a listing.
Per guidance from the National Association of Realtors, compensation can be advertised on brokerage flyers, brokerage websites, and signage, but not on the MLS or any affiliated platforms/apps.
Alongside this change, the Minnesota Realtors Association has revised several forms. This is especially important to understand as consumers enter into this new era of real estate. The updated Minnesota forms were rolled out on August 1st, 2024, and are currently being used to buy and sell homes in the state of Minnesota.
With the two new rules going into place on August 17th, there is also another way for a buyer’s broker to receive compensation. It doesn’t affect the consumer much, but it’s important to understand the concept as there is a new section in the Purchase Agreement pertaining to this change.
Traditionally, a cooperating buyer’s broker (aka buyer’s agent) could be compensated in two ways:
- Via the listing brokerage as cooperation compensation (most common). For example, the listing agent’s commission to sell the home is 10% (this is an example and not an actual listing fee amount!), and from that 10% the listing agent would agree to share 5% with the buyer’s broker for bringing a buyer to purchase the home.
- Directly from their client (the buyer) through terms agreed upon in the Buyer Representation Contract. For example, the listing agent would only take their fee from the seller, and the buyer would bring cash to closing to pay for their agent’s compensation.
As of August 1st, there is now a third option for a buyer’s broker to receive compensation. A buyer’s broker can now receive their commission directly from the seller – paid to the buyer’s broker at closing. In this case, the buyer’s broker compensation would be filled out in the purchase agreement between the buyer and the seller. This route is similar to option 1 listed above and nets the seller the same at the end of the sale. The biggest change is that the buyer’s agent’s compensation would be explicitly stated in the Purchase Agreement, becoming a term of the sale.
So what does all of this mean going forward? We will have more real-time information in the next few months as the regulations are played out in the actual market, but buyer agent commissions are going to become another piece of the negotiation puzzle.
Some sellers may opt to offer a buyer’s broker compensation up front to draw in the largest buyer pool possible. Some sellers may not opt to offer compensation to see what offer(s) come in. Maybe a buyer may want to pay their agent’s compensation out of pocket, or the buyer and seller may agree to split the buyer’s broker’s commission – it’s all up for negotiation.
As a seller, the conversation around buyer broker compensation will heavily depend on your primary objectives when selling your home. Your agent will be able to talk this through with you more in-depth.
A few things I do know for certain are that working with a skilled and trusted agent is going to be more crucial now than ever. Before you enter into a contract with a Realtor, you should understand and feel comfortable with the contract you are signing, the terms of the contract, and the agent’s commission amount – and of course trust them to be your agent!