The NAR Settlement and its Impact on Homebuyers, Real Estate Agents, and Loan Officers

On Friday, March 15th, the National Association of Realtors (NAR) agreed on a settlement for the ongoing real estate commission lawsuits with $418 million paid in damages and several rule changes that impact the overall homebuying process.

These rule changes include the abolishment of the “Participation Rule” which previously required selling agents to display the buyer agent compensation for each listing on the Multiple Listing Service (MLS).

Below, we outlined how the NAR settlement will directly impact real estate agents, homebuyers, and loan officers as they conduct business throughout 2024 and beyond. This piece will be updated as new information is received regarding the settlement. Last update: March 25, 2024.

How the NAR Settlement Impacts Real Estate Agents

The NAR settlement and subsequent rulings will have the greatest impact on real estate agents, and more specifically agents who are representing prospective homebuyers.

Following the settlement, the MLS—a service used by buy-side agents to find new listings for their clients and connect with listing agents to negotiate a deal—will no longer display the exact buyer agent compensation.

The settlement also ruled that buyer agents must have a signed agreement with the homebuyer they represent with this rule expected to take effect in July 2024. As of right now, there is no mandatory verbiage needed in these agreements beyond written confirmation that the homebuyer is choosing to work with the agent.

While these are major changes in a commission-based industry, it doesn’t necessarily mean that the homebuying process as it is known will be uprooted.

Although buyer agent compensation won’t be listed in the MLS, it can still be negotiated between the buyer and the seller and facilitated by the buy-side and listing agents. Moreover, buyer agent compensation can be legally shared by the listing agent to the buyer’s agent or advertised alongside a listing in marketing materials as long as it’s not on the MLS. So, in most cases, a buyer agent can still see what they could earn and negotiate compensation before an offer is submitted.

At the end of the day, real estate agents provide a bounty of value to the homebuyers they serve. For those shopping for their home, the market expertise, neighborhood know-how, and experienced perspectives offered by licensed real estate agents are invaluable throughout the homebuying process and should be demonstrated in the now-mandated buyer-broker agreements.

How the NAR Settlement Impacts Homebuyers

The major change brought forth by the NAR settlement that prospective homebuyers will notice is the required agreement that they will sign before they start working with their real estate agent. This rule will go into effect in July 2024.

These agreements will likely provide a comprehensive overview of the services provided by their real estate agent and, upon signing, will confirm the buyer’s commitment to work solely with their buy-side agent to buy their home and that the agent will be compensated for brokering the purchase of the home.

Through this process of negotiating the buyer-agent agreement, there is greater room for negotiation on the terms in which an agent is paid. These options include payment via a fixed-fee commission paid directly by the buyer, seller concessions, or a percentage of the listing agents’ commission—the latter of which is how buyer agents have historically been compensated.

There is speculation that this ruling combined with a lack of seller-paid agent compensation could see the cost to buy a home fall, but that isn’t necessarily true. In most cases, buyer and listing agent compensation is paid by the seller and built into the listing price of the home.

Suppose a seller chooses not to pay the buy-side agent’s compensation or the listing agent opts against sharing their commission as part of the negotiations. In that case, buyers will instead have to pay out of pocket for their real estate agent representation. This is expected to be an exception as selling agents need to provide incentives to generate interest in their listings, and that incentive has traditionally been through buyer agent compensation.

For many homebuyers, and especially those buying for the first time, coming up with the extra cash to pay their agent’s commission on top of what’s needed for their down payment or closing costs can be challenging. Following these rule changes, it’s still possible for the buy-side agent to be compensated through a seller-paid commission that’s been baked into the price of the home and paid as part of the mortgage.

Whether you’re buying your first home or purchasing your next home, working with a licensed real estate professional is hugely beneficial. On top of their market and neighborhood expertise, real estate agents can often spot issues with homes before the inspection to save you from wasted time putting an offer on a home that will end up being a money pit within your first few months or years of living there.

If you need to connect with an experienced real estate agent to help you with your home purchase, feel free to reach out to your UMortgage Loan Originator; they will be able to put you in touch with a trusted partner in your area.

How the NAR Settlement Impacts Loan Officers

Loan officers are the party that’s least impacted by the recent NAR rulings as lender compensation is already included in closing costs. There is still plenty of value that real estate agents offer both homebuyers and loan officers throughout the homebuying process. Because of that, this ruling likely won’t change the working relationship between LOs and real estate agents.

If costs for homebuyers increase, independent mortgage brokers should highlight the lower closing costs available to buyers when they work with a broker rather than historically expensive banks and retail shops.

Homeownership is a privilege, and UMortgage is on a mission to create life-changing opportunities through homeownership by making it more accessible for buyers across the nation. If you’re interested in learning more about your buying power or want to find a UMortgage Loan Originator in your area, follow this link to get started.