NAR real estate compensation rules clearly explained.
June 29,2025 | Posted By Flavia Brown in Real Estate
New mandated real estate compensation rules, effective August 17, 2024.
Much confusion and misinformation are going on. The following is a clear explanation of the new NAR rules and their impact on buying and selling real estate.
The primary concern. Many prospective buyers and sellers, and real estate agents wonder how a buyer’s agent and broker will get paid when escrow closes, since the new NAR rules deleted the seller's obligation to pay the buyer broker's compensation and don’t allow listing agents to state on the MLS that the seller will pay the buyer’s broker compensation (like it has been done for the past 150 years). By the way, "commission" has been replaced by "compensation" in revised real estate forms. " Broker fees" is okay, but no more "commission." Many buyers are worried that they will have to pay their agent’s compensation because of the new rules. That’s a legitimate concern, since many buyers can’t afford to pay the compensation, because after saving money for a down payment, property taxes, homeowners insurance, closing costs, the purchase price, dealing with price increases, and having money for repairs and upgrades, there's hardly enough money left to pay the buyer’s agent and broker any compensation. (By the way, buyers should search for lower-priced homes than what they are qualified for, to avoid being financially strapped). The best way to circumvent this new rule is to hire the right realtor because there are several ways to avoid paying a commission. One way is for buyers to enter in their purchase agreement (offer) that the seller shall pay the buyer’s broker fee X percent of the purchase price at close of escrow. They usually will because they want to attract as many buyers and agents as possible. Another way is to make a low acceptable offer. Here is an appropriate Q & A:
Q -- What can be done if a seller refuses to pay the buyer broker’s commission (BBC) after being asked to pay via a purchase agreement?
A – Assuming that the comps support this strategy, the buyer presents an offer less than the asking price and pays the BBC. If the offer is accepted, it will likely be a win-win: The buyer buys the property at a lower price, and the seller doesn’t have to pay the BBC.
The new NAR rules. One important rule is that buyer’s agents are required to complete and have their buyer sign C.A.R. form BRBC before showing any property to the buyer. This Buyer Representation and Broker Compensation agreement may or may not include compensation to the buyer’s broker. The buyer’s offer will probably include asking the seller to pay the buyer’s broker commission. If the buyer and seller won’t offer to pay the commission, the buyer’s agent will cancel the offer, and maybe the buyer will buy the property directly through the listing agent. Most often that is a buyer’s big mistake because the listing agent’s fiduciary duty is to the seller, which includes getting the home sold at the highest price possible and with terms favorable to the seller. However, some listing agents will represent the seller and buyer (dual agency) so they can get a “double-end” commission. Real estate attorneys love dual agencies because there are many lawsuits (mostly, buyers suing sellers and listing agents).
Good news for buyers who are borrowers (lenders’ term): Realtor associations like C.A.R. negotiated with the lender community to ensure that compensation concessions offered through form SPBB (Seller Payment to Buyer's Broker) can be effectively financed through the purchase price and don’t count against lender limits.
The following two sections explain what the settlement means to buyers and sellers.
Here is what the settlement means for homebuyers:
+ It is a law that you sign a written agreement with your agent before touring a home. However, there are no restrictions on visiting an open house by yourself.
+ Before signing this agreement you should ensure it reflects the terms you have negotiated with your agent and that you understand exactly what services and value will be provided, and for how much.
+ The buyer agreement must include four components concerning compensation:
A specific and conspicuous disclosure of the amount or rate of compensation the real estate agent will receive, or how this amount will be determined.
A term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.
A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
Written agreements apply to both in-person and live virtual home tours.
Buyers do not need a written agreement if you are just speaking to an agent at an open house or asking them about their services.
+ The seller may agree to offer compensation to your agent. This practice is permitted, but the offer cannot be shared on a Multiple Listing Service (MLS)— MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
+ You can still accept concessions from the seller, such as offers to pay your closing costs.
Here is what the settlement doesn’t change:
Agents who are realtors are here to help you navigate the home buying process and are ethically obligated to work in your best interest.
Compensation for your agent remains fully negotiable, and if your agent is a realtor, they must abide by the REALTOR® Code of Ethics and have clear and transparent discussions with you about compensation. When finding an agent to work with, ask questions about compensation and understand what services you are receiving.
Buyers have choices. Work with your agent to understand the full range of these choices when buying a home, which will help you make the best possible decision for your needs.
Here is what the settlement means for home sellers:
Sellers still have the choice of offering compensation to buyer brokers. You may consider doing this as a way of marketing your home or making your listing more attractive to buyers.
Sellers' agents must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers. This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.
If you choose to approve an offer of compensation, there are changes to how this can happen. You as the seller can still make an offer compensation, but your agent cannot include it on a Multiple Listing Service (MLS)—MLSs are local marketplaces used by both buyer brokers and listing brokers to share information about properties for sale.
Your agent can advertise your listing via off-MLS platforms such as social media, flyers, and websites.
You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs).
Here is what the settlement doesn’t change:
Agents who are realtors are here to help you navigate the process of selling your home and are ethically obligated to work in your best interest.
Compensation for your agent remains fully negotiable, and if your agent is a realtor they must abide by the REALTOR® Code of Ethics and have clear and transparent discussions with you about compensation. When finding an agent to work with, ask questions about compensation and discuss what you would like to offer buyers.
You have choices. Work with your agent to understand the full range of these choices when selling your home, which will help you make the best possible decision for your needs.
How buyers and sellers should respond to the new NAR and DOJ commission settlement rules:
For Buyers:
Review Commission Information:
Check Disclosures: When looking at property listings, review the commission information provided. The new rules require clear disclosure of the commission that the seller is offering to the buyer's agent. This can help you understand the incentives and potentially negotiate better terms.
Ask Questions:
Inquire About Commissions: Don’t hesitate to ask your agent about how commissions are structured and whether there are any additional fees you should be aware of. Transparency should be higher, so take advantage of this.
Consider Agent Services:
Evaluate Agent Value: With clearer commission information, assess whether the services provided by your agent justify the commission. If you feel the services offered are not aligned with the cost, you might consider discussing alternative arrangements.
For Sellers:
Understand Commission Offers:
Be Transparent: Ensure that you understand and clearly communicate the commission you are offering to the buyer’s agent. This should be reflected in your listing and agreements.
Review MLS Listings:
Check Listing Visibility: Make sure your property is listed on multiple MLS platforms as required, and that your listing complies with the new rules about transparency and access. This will help your property reach a broader audience.
Negotiate with Agents:
Discuss Commission Terms: Use the increased transparency to negotiate terms with your listing agent. Since commission structures are now more open, you have a better understanding of industry standards and can negotiate more effectively.
General tips for both buyers and sellers:
Stay Informed: Keep up-to-date with any further changes or updates to real estate practices and regulations.
Consult professionals: Consider seeking advice from a real estate attorney or advisor to navigate the changes and ensure that all aspects of your transactions are handled appropriately.
By understanding and reacting to these new rules, both buyers and sellers can make more informed decisions and potentially benefit from greater transparency and competition in the real estate market.
Advice to my fellow realtors -- the best ways a real estate buyer's agent can get paid a commission when following the new NAR and DOJ commission settlement rules:
Under the new NAR and DOJ commission settlement rules, the way buyer's agents are compensated has become more transparent. Here’s how a real estate buyer's agent can get paid a commission effectively while adhering to these new rules:
Understand Commission Disclosure Requirements:
Clear Commission Information: Sellers are now required to clearly disclose the commission offered to the buyer’s agent in property listings. Ensure that you and your clients understand this disclosure so you can plan accordingly.
Negotiate Commission Upfront:
Discuss Terms Early: When working with buyers, discuss commission arrangements with them early in the process. Make it clear how commissions are structured and any potential costs involved.
Include in Buyer Agreement: If the seller’s offered commission is not sufficient, negotiate a higher commission with your buyer or include a commission agreement in the buyer’s representation contract.
Provide Value to Justify Your Commission:
Showcase Your Services: Demonstrate the value you bring to the transaction. Highlight how your expertise, negotiation skills, and market knowledge benefit the buyer.
Document Your Contributions: Keep detailed records of your work and the services you provide to show that your commission is well-earned.
Utilize Commission Agreements:
Buyer-Broker Agreements: Use a buyer-broker agreement to specify how and when you will be compensated. If the seller’s commission is lower than expected, this agreement can include a clause for the buyer to cover any shortfall.
Disclose Fees: Ensure that any additional fees or commission arrangements are clearly disclosed to the buyer, in compliance with the new transparency rules.
Adapt to Market Changes:
Stay Flexible: Be prepared to adapt your commission structure to market conditions. For example, if the standard commission offered by sellers is lower, you might need to adjust your approach or seek alternative compensation methods.
Leverage Technology and MLS:
Use MLS Data: Take advantage of MLS systems to review and understand commission disclosures and access detailed listing information.
Promote Listings: Use technology and marketing tools to effectively promote properties and demonstrate the value you provide to buyers.
Educate Buyers:
Inform Clients: Educate your buyers about how commission structures work and how the new rules impact them. This transparency can help build trust and make clients more comfortable with your services.
By understanding and adapting to the new commission rules, a real estate buyer’s agent can ensure they are compensated fairly while maintaining compliance with the latest regulations. This approach not only helps in managing expectations but also reinforces the value provided in the transaction.
Background and Settlement info :
Background: The DOJ investigated NAR practices because of concerns that certain NAR rules and practices might be limiting competition in the real estate market. Specifically, there were concerns that some of NAR's rules might be creating barriers to competition among real estate agents and brokers, potentially leading to higher costs for consumers.
Key Issues: The DOJ focused on two main issues:
Commission Rules: The DOJ was concerned about rules related to how real estate commissions are negotiated and disclosed. Traditionally, sellers’ agents often offer a commission to the buyer's agent as an incentive. The DOJ looked into whether NAR rules were promoting or encouraging practices that might limit transparency or competition in how commissions are handled.
MLS Access and Transparency: Multiple Listing Services (MLS) are databases where real estate listings are shared. The DOJ was also interested in whether NAR's rules were restricting access to MLS or limiting how listings could be presented and accessed by potential buyers and other agents.
Settlement Agreement: In 2023, NAR and the DOJ reached a settlement to address these concerns. The main aspects of the settlement included:
Transparency in Commissions: NAR agreed to modify its rules to make commission structures more transparent. This included ensuring that the commission offered to the buyer's agent is clearly disclosed to the public, so buyers can see exactly what incentives are being offered.
Enhanced MLS Rules: The settlement also involved changes to MLS rules to improve transparency and access. This means that MLS systems should be more open and accessible, and the rules governing how listings are shared and presented should be more consumer-friendly.
Consumer Protections: The settlement included provisions aimed at protecting consumers, ensuring they have better information and more choices when buying or selling property.
Impact: These changes were designed to promote greater competition and transparency in the real estate market. By making commission structures more transparent and improving the way MLS systems operate, the settlement aimed to lower costs and provide better service to consumers.
In summary, the settlement between NAR and DOJ was about addressing competition concerns and improving transparency in the real estate industry. The agreement aimed to make the market more competitive and consumer-friendly by changing rules related to commissions and MLS access.
The National Association of Realtors (NAR) and the Department of Justice (DOJ) reached a settlement to address concerns about real estate commission practices and market transparency. Here’s a brief summary of the settlement rules:
Commission Transparency: NAR agreed to change its rules so that the commissions offered by sellers to buyers' agents are clearly disclosed. This means buyers will be able to see exactly how much commission is being offered to their agent.
Improved MLS Access: Changes were made to Multiple Listing Service (MLS) rules to ensure better access and transparency. This includes making MLS systems more open and user-friendly, so listings are more accessible to buyers and other agents.
Consumer Protections: The settlement aims to enhance consumer protections by ensuring better information and more choices in the real estate market.
These changes are intended to promote fair competition and make the real estate process more transparent and cost-effective for consumers.
###
No Post Found