Industry Update: The NAR Settlement & Real Estate Practice Changes
Below is a much needed summary and update on the real estate industry practice changes that took effect in August. These changes are a result of the National Association of REALTORS® class action law suite settlement that has been over a year in the making. I have done my best to simplify what it all means for Buyers and Sellers going forward. Ultimately, while it feels like a bit of a speed bump for us Brokers at the moment, the change is a positive one for consumers, as it is generating more transparency around Broker compensation. Learn more below.
You may have read or seen in the news that the National Association of REALTORS® (NAR) and other major real estate corporates (such as the corporation that owns Sotheby’s International Realty, Anywhere Real Estate, Inc) were involved in a national class action anti-trust lawsuit that started in 2019. Settlements began last year. The concerns and upcoming industry changes involve Buyer representation and Buyer agent compensation (i.e. what we used to call cooperating commissions). In response, the state of Colorado and all United States REALTOR® governed MLS’s implemented the following major changes to our standard practices on August 15th, 2024. On August 15th, the state of Colorado released new required listing agreements and new buyer agency agreements that comply with the terms of the NAR settlement. I have summarized these practice changes in my own words below and provided additional resources and readings below:
1. Buyer Agency Agreements
All REALTOR® owned MLS’ (including the Aspen Glenwood MLS) now require Members (i.e., agents) to have signed Buyer Agency Agreements with all Buyers. My company has always required this document in our transaction file for closing so this isn’t new. The timing will be more important now though – it means that we Brokers are supposed to have an exclusive buyer agency agreement signed BEFORE we show any homes or properties. It means I can no longer wait until the Buyer is under contract on a home to have this drafted and signed. While this may seem awkward, especially when working with a new Buyer that I haven’t met yet or yet met (eek!), it is now standard practice for all Brokers going forward. There are ways, however, to make signed Buyer Agency Agreements more comfortable for Buyers, by limiting it to just the properties we are touring that day and by adding properties via an amendment as we go. If you are a Buyer, we’ll talk about what makes the most sense for you and your search.
2. Cooperative Buyer Agency Commissions Advertising & Syndication
Up until August 13th, 2024, Seller paid cooperating commissions offered for Buyer’s brokers were listed as a percentage amount in the MLS (whether that was 0% or X%). As of August 13th, REALTOR® owned MLS’s are no longer allowed to display that field (to brokers or buyers) or syndicate that field to real estate search websites (such as Zillow). We are also not allowed to use any other software that syndicates that information (such as our ShowingTime showings app). The reason for that is that the buyer agency commissions can no longer be “fixed” (i.e., set in stone in a database). That means that as your Buyer’s agent, I will have to inquire what compensation the seller is offering before showing a home. My job and part of my responsibility to my Buyers is to inform you if the amount the Seller is offering is less than what we have agreed upon. If the Seller is not offering Buyer’s agent compensation, we’ll discuss what your options are, which includes negotiating for it in an offer.
3. Seller Paid Buyer Agent Commissions
Sellers have never been required to pay Buyer’s agent commissions, but it was common practice for a long time. That is what the class action lawsuit is about. We now have to make sure Sellers are aware that they aren’t required to offer or pay Buyer Agent compensation. Therefore, as we begin seeing properties, it is important to find out if the Seller is offering a Buyer’s Agent compensation and if so, what that amount or percentage is. We have a new document called the Brokerage Firm Compensation Agreement that Buyer agents can send to listing brokers in advance to confirm in writing what compensation the Seller is offering. Our new listing agreements give us listing brokers the authority to do that on Seller’s behalf. New practices also mean that the listing agent commission and the buyer agent compensation percentages or amounts do not have to be the same (i.e., the listing broker compensation could be one percentage and the Buyer/Selling broker compensation could be something higher or lower). Sellers, we will discuss your options and corresponding pros and cons. Ultimately, if you would like to offer a Buyer Agent compensation, that will be spelled out in our Listing Agreement.
4. Options for Buyer Agent Compensation
In the past, Buyer agent compensation was not always disclosed to Buyers nor was it commonly known to Buyers that they had the option to pay their own broker if they wanted to. So, all of these changes, while they feel a bit clunky and new, are aimed at providing more transparency for Buyers and the industry in general.
Compensation for my services representing you as a Buyers’ Agent, is negotiable, just like compensation is for listing brokers. That amount or percentage will be agreed upon in our Buyer Agency Agreement. Ultimately, that can be paid by the Seller, the Buyer or a hybrid of both, depending on what compensation the Seller is offering or willing to pay during offer negotiations. It is important to note that so far, I am seeing that most Sellers are still offering Buyer Broker compensation, but we may see that change in time.
The other important practice change here in Colorado is that our new purchase contract (i.e., what we use to write offers) has a new section, 29.1, that specifies how the Buyer's agent is getting paid (i.e., the seller, the buyer or both) and what the compensation is (whether a percentage of the final purchase price or a flat amount). It is now clearly disclosed up front and negotiable during the initial offer process. Here is what it looks like:
Note: It is important to clarify that these new requirements and practice changes are not national or Colorado law; they are stipulations of the NAR settlement.
5. Further Resources
Here are links to additional information from the National Association of REALTORS and helpful other resources:
a. "The Truth About the NAR Settlement Agreement" by the NAR: https://www.nar.realtor/magazine/real-estate-news/law-and-ethics/the-truth-about-the-nar-settlement-agreement
b. NAR Settlement FAQs: https://www.nar.realtor/the-facts/nar-settlement-faqs
c. "What the NAR Settlement Means for Home Buyers and Sellers" by the NAR: https://www.nar.realtor/the-facts/what-the-nar-settlement-means-for-home-buyers-and-sellers
d. Aspen Glenwood MLS Policy Changes: https://app.box.com/s/trovjje18d9vkbx08sz44hbr8bq758vf
e. "Important Updates in Real Estate Practices: What You Need to Know" by my brokerage firm, Aspen Snowmass Sotheby's International Realty. This is a really nice and simply view of the changes: https://aspensnowmasssothebysrealty.blog/2024/09/06/important-updates-in-real-estate-practices-what-you-need-to-know/
Moving Forward
Ultimately, these new practice changes are aimed at making Buyer and Seller Agent compensation more transparent and more clearly negotiable. The NAR settlement and the required practice changes by our MLS are aimed at promoting the public’s greater good and protecting consumers. The NAR settlement was also beneficial for us REALTORS® because it ended litigation of claims brought on behalf of home sellers related to broker commissions. It just means that we all have to have more conversations about it than we had to before. It is all very new and questions are likely to arise. Know that I am here to answer your questions and concerns, however big or small! If you are concerned about what this means for you, please reach out! I anticipate that we will see further changes to our listing and purchase contracts when they are released again in January, as we work out some kinks.