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3 Important Changes Every Homeowner Should Know About NAR
Geoff Goolsby
As a fiercely competitive real estate agent with a passion for seeing my clients succeed, I've dedicated my career since 2012 to not just meeting, but...
As a fiercely competitive real estate agent with a passion for seeing my clients succeed, I've dedicated my career since 2012 to not just meeting, but...
The landscape of real estate is evolving, and with it, the way homeowners and buyers navigate transactions. Whether you’re considering selling your home, buying your first property, or simply staying informed, understanding these changes is crucial. The recent settlement has introduced significant shifts in real estate practices that directly impact how agents represent clients and how fees are structured. While these changes might seem overwhelming at first glance, this post will break down the key updates you need to know, helping you make informed decisions in this new era of real estate.
Quick Background
Over the past few years, the real estate industry has faced increasing scrutiny from regulators and consumer advocacy groups. The primary concern has been the transparency and fairness of real estate transactions, particularly in how agents are compensated and how buyers and sellers are represented. These concerns led to legal actions and settlements aimed at ensuring that consumers fully understand their options and are not subject to hidden or unclear costs. The recent settlement, which culminated after nearly two years of negotiations and legal proceedings, is a direct response to these issues. It introduces new practices designed to foster greater transparency, fairness, and clarity in real estate transactions with the hope of benefiting both buyers and sellers.
Before we get started
This blog post is just the starting point for understanding these important changes. Real estate is a complex and ever-evolving field, and I’m here to help you navigate it with confidence. Whether you have specific questions about how these changes might impact your buying or selling process, or if you're simply curious about what they mean for your future real estate goals, I’m just a call or email away. Let’s continue this conversation and ensure you’re fully informed and prepared for your next steps.
#1: Representation
There have been some adjustments to representation agreements in California. Buyers and sellers are now required to have formal representation agreements when working with an agent.
- Old:
- The seller hires a listing agent.
- Buyers had the option of having an informal representation relationship; no representation agreement is required to view homes or submit offers. In short, you call or text to see a house, and an agent could meet you to show it.
- New:
- The seller still hires a listing agent (no significant change here).
- Formal representation agreements must now be in place before a buyer and agent can tour properties or submit offers.
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#2: Decoupling of Compensation
This topic has received the most media attention, though not always accurately. While real estate fees have always been negotiable, the recent settlement introduces new practices for how these fees are managed between buyers and sellers.
Old:
- The seller hires a listing agent, and a listing agreement establishes the compensation for the listing agent. The listing agent typically shares a portion of this commission with the buyer’s agent.
- Buyers rarely pay for representation directly.
New:
There are now several options for how compensation can be handled:- Seller-directed compensation: The seller hires the listing agent and pays their compensation. The seller also agrees to pay the buyer's agent directly.
- Buyer-directed compensation: The seller pays the listing agent’s compensation, while the buyer pays their agent directly.
- Combo compensation: The seller hires the listing agent and pays their compensation. Both the seller and buyer contribute to the buyer's agent's compensation.
- Concession compensation: The seller pays the listing agent’s compensation and may offer a concession to the buyer, who then uses it to cover their closing costs, including the buyer agent’s fees.
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#3: Process and Practice Changes
In my opinion, this is the most significant area of change, even though it’s received less attention in the media. A lack of understanding here could lead to confusion, frustration, and a less-than-ideal real estate experience.
- Old:
- Listing agents could advertise the buyer agent's compensation on the MLS.
- Since compensation was already disclosed through the MLS, there was no need to include offers of buyer compensation in the buyer’s offer.
- Buyers could request a showing with an agent without needing a formal agreement.
- New:
- Buyer agent compensation is no longer advertised on the MLS.
- Compensation offers can still be made on private websites, as long as they are not displayed on the MLS.
- Buyer offers must now include the terms of the buyer agent’s compensation.
- Buyers must sign a formal representation agreement before engaging in the real estate process, including viewing homes and making offers.
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What does this mean for you?
Sellers: Determining the compensation strategy for the buyer's agent is (and always has been) negotiable. If you are selling your home, the strategy you choose may still have a significant impact on the success of your sale.
Buyers: If you want to see a home or write an offer where you are represented by a professional agent, then you must have a formal agreement. Two primary agreements are being used in California. A Property Touring Agreement (used to see a small number of specific homes), or a Buyer Representation Broker Compensation Agreement (used to establish formal representation for a specific period of time - this will be the most commonly used agreement).
Both Buyer and Seller: Everything is still negotiable. It always has been. There are just some new practices that help formalize these negotiations. Unfortunately, professional agents will still charge a fee for their services, there will still be a cost to selling or buying real estate. Fortunately, these changes have raised awareness on the importance of having true professionals representing clients who are buying and selling real estate.
A deep dive from the president of my company
If you’d like to learn more, the president of my company has created a video explaining each of these changes in greater detail.
Once you've had a chance to review this email or watch the video, I’d love to hear your thoughts or questions.