The 3 Biggest Myths About the NAR Settlement Ruling
The National Association of REALTORS (NAR) recently settled a lawsuit related to broker commissions. The $418M settlement, if approved by a federal judge, would no longer require sellers to provide an offer of compensation to a Buyer’s Brokerage, and would simultaneously stipulate a Buyer to enter into a representation agreement with their Agent, making them responsible for their own Agent’s compensation.
There has been a lot of sensationalism surrounding this ruling and inaccuracies about potential results. Below I debunk some of the most common myths I have seen discussed in the headlines.
Myth #1: Real estate values will go down.
Reality: The NYTimes insinuated that home price values will come down since sellers will no longer be required to pay a commission to the buyers agent. This in of itself is counterintuitive to seller psychology. Sellers aren't going to lower their price expectations just because they may potentially pay less in fees. Market value is market value, and a seller will typically want to sell for the highest price possible regardless of the fees they pay in the end.
Myth #2: Buyers must come out of pocket to pay their agent a commission.
Reality: Sellers will still be able to offer concessions in the MLS, which can include buyer broker fees. Our purchase agreement has a paragraph dedicated to shifting the responsibility of buyer broker payment from the buyer to the seller, and this will likely become a commonplace practice when writing an offer.
Myth #3: Real estate commissions are inflated and/or agents are overpaid.
Reality: The current payment structure allows alignment between agent and buyer incentives. Real estate agents only receive a commission if they close a transaction. Agents can work weeks, months, and sometimes years with buyers before being paid for their work. Agents are advisors, therapists, relationship, neighborhood and pricing experts, data analysts, and come with local experience and expertise. Agents are required to be licensed by national, state, and local associations and must abide by a code of ethics, legally adhere to rules of disclosure, and legally required to perform a fiduciary duty on behalf of their buyer clients. Agents understand and explain inspection reports, seller disclosures, and walk their buyers line by line through the purchase contract. Agents in the Bay Area provide a minimum level of service and diligence that is unmatched anywhere else in the world.
