What You Need to Know About the NAR Settlement Going into Full Effect

Post NAR Settlement

The real estate landscape is about to undergo a significant change as the National Association of Realtors (NAR) settlement officially goes into full effect on August 17th. This development has sparked a lot of concern and questions within the real estate community, particularly regarding how it will impact daily operations, client interactions, and the overall approach to real estate transactions.

This blog post aims to break down the essentials of the NAR settlement, provide clear scripts for navigating the new landscape, and help agents feel more confident as they adapt to these changes.

What You Need to Know About the NAR Settlement Going into Full Effect

The NAR settlement stems from a class action lawsuit where sellers accused real estate agents of price fixing. The lawsuit highlighted a practice where many MLS boards required a listing to offer a cooperating compensation agreement to be included in the MLS. In many cases, there was even a minimum fee that had to be offered, which sellers were paying without any opportunity to negotiate with the buyer’s agent.

As a result of the settlement, this practice is no longer allowed, and commissions have been decoupled. Going forward, when taking a listing agreement, agents must advocate for their personal fee and prepare sellers for the possibility that they may need to offer a concession to attract the highest netting offer.

New Procedures for Listing Agents

What You Need to Know About the NAR Settlement Going in when discussing fees with sellers, it’s crucial to set realistic expectations regarding their net proceeds and the offers they might receive. Here’s a suggested script:

“Mr. and Mrs. Seller, based on today’s market, I expect you to net around this amount from the sale of your home. I’ve included my fee of X percent in this estimate, and I’ve also factored in a possible concession of X percent. This concession might be necessary to compensate the buyer’s agent. However, remember that the amount you contribute to this fee is negotiable through the contract.”

It’s essential to reassure sellers that they will never be required to pay a fee they don’t agree to upfront.

Working with Buyers Under the New Rules

Buyers need to understand that they are responsible for compensating their buyer’s agent, though this fee can often be negotiated to be covered through escrow. The fee can be handled in one of three ways:

1. Negotiated in the contract for the seller to pay the fee directly to the buyer’s agent’s brokerage.

2. The seller credits the buyer with all or part of the fee as a closing cost credit.

3. The buyer absorbs the fee themselves, adding it to their cash to close.

It’s vital to work closely with the buyer’s lender to ensure that the client understands their cash-to-close commitment before submitting an offer.

Establishing Agency Relationships

One of the settlement’s key stipulations is that agency must be established before performing any duties that require a license, including showing properties. While some agents are concerned about this, it’s possible to navigate this change smoothly with a strategic approach.

When meeting potential clients, it’s important to start with a consultation conversation. Here’s an example:

“Well, you know, most people start this process with a home search because it’s the most exciting part. However, the danger is that once you find what you’re looking for, you’ll need to make critical financial decisions at a high emotional state. I believe it’s in your best interest to sit down and review the contract, process, and build a plan around your home purchase before that happens.”

During this consultation, you can then introduce the agency agreement, ensuring that the client understands the terms and your commitment to act in their best interests.

Navigating the New Landscape

For agents reliant on online leads, the new rules may feel particularly challenging. However, it’s crucial to adhere to the law, even if it feels uncomfortable. When talking to potential clients, be upfront about the new requirements:

“You may have heard about the NAR settlement, which is now in full effect. This means I need to establish an agency relationship with you before I can perform any duties that require a license, including showing homes. I’ll send over an agency agreement, and we can review it together in detail over a call. The first agreement I send will only be for a few days, just to get you through the tours you’re interested in. Then, we can discuss a more long-term plan.”

Final Thoughts

As the NAR settlement goes into effect, it’s important to lean into the basics and not be afraid to leverage the new rules to your advantage. While it may feel like a significant shift, adhering to these new practices is essential for protecting your license and your business.

Remember, the settlement is designed to create a more transparent and fair process for all parties involved in real estate transactions. By embracing these changes and educating your clients about the new procedures, you can continue to provide excellent service and navigate this new era in real estate with confidence.