NAR commission rules for home buyers

The real estate industry has undergone a significant transformation, involving NAR commission rules for buyers.

This pertains particularly in how commissions are handled for buyer’s brokers.

For many years, the traditional approach allowed sellers to pay the buyer’s broker’s commission, simplifying the process for buyers. However, new rules from the National Association of Realtors (NAR) lawsuit are changing this landscape, making it crucial for both buyers and sellers to understand their new responsibilities.

The Old Way: Sellers Paying the Buyer’s Broker Commission

Traditionally, when a home was sold, the seller would pay a commission that covered both their own listing agent and the buyer’s broker.

This arrangement meant that buyers could work with a broker without directly worrying about the cost, as it was included in the overall commission paid by the seller.

This approach was straightforward, and it helped facilitate transactions by removing financial barriers for buyers.

The New Rules: Buyers Responsible for Their Broker’s Compensation

With the recent changes implemented by NAR, buyers are now expected to compensate their own brokers directly.

This shift places the financial responsibility squarely on the buyer’s shoulders, making it essential for buyers to negotiate and agree upon the broker’s compensation upfront.

Key Change: Written Agreement Requirement

One of the most significant updates is the requirement for buyers to sign a written agreement with their chosen broker before touring any property—whether in person or virtually.

This new rule is designed to protect both the buyer and the broker by clearly outlining the expectations and responsibilities from the outset.

What the Agreement Covers

The written agreement will detail the terms that have been negotiated between the buyer and the broker. This includes:

• Services Provided: The agreement will specify the range of services the broker will offer. This might include searching for properties, negotiating offers, arranging inspections, and providing guidance throughout the buying process.

• Compensation: The agreement will also outline how the broker will be compensated. This could be a flat fee, a commission based on the sale price, or another structure agreed upon by both parties.

• Duration and Scope: The agreement will indicate how long the arrangement will last and any specific conditions, such as whether the broker will represent the buyer exclusively or if the buyer is free to work with other brokers.

Sellers May Still Pay, But Buyers Won’t Know

While sellers can still choose to pay for the buyer’s broker, the process is less transparent than before.

Following a recent NAR lawsuit, information about whether a seller is willing to cover the buyer’s broker commission has been removed from the MLS (Multiple Listing Service).

This lack of visibility means that buyers and their brokers will no longer know upfront if the seller is offering to pay, making it necessary for buyers to discuss and plan for these costs in advance.

Strategies for Buyers: Asking for Concessions

If a seller is not willing to pay the buyer’s broker, buyers can ask for concessions during the negotiation process.

A concession is essentially a credit that the seller gives the buyer at closing, which can then be used toward the buyer’s broker’s compensation.

However, it’s important to note that any shortfall between the agreed-upon broker compensation and the concession must be covered by the buyer.

For example, if a buyer agrees to compensate their broker with a 3% commission, but the seller only offers a concession that covers 2%, the buyer would be responsible for paying the remaining 1% out of pocket.

How to Navigate the New Rules

If you’re in the market to buy a home, here’s how you can navigate these new rules effectively:

1. Choose Your Broker Carefully: Take the time to interview potential brokers and ensure they understand your needs and preferences. A good broker will be transparent about their services and fees.

2. Negotiate the Terms: Don’t be afraid to discuss the terms of the agreement. Ensure that the services provided align with your expectations and that the compensation structure is fair.

3. Review the Agreement Thoroughly: Before signing, read the agreement carefully. Make sure you understand all the terms and conditions, and don’t hesitate to ask questions if anything is unclear.

4. Keep a Copy: Once signed, keep a copy of the agreement for your records. This will serve as a reference throughout the buying process.

Conclusion

The shift in how commissions are handled means that buyers need to be more proactive and financially prepared when entering the real estate market.

If you are getting ready to purchase a home in the Greater Ocala area, Dunnellon, Citrus Springs, Lecanto, Homosassa, Gainesville and surrounding area, please allow me to put my over 2 decades of experience to work for you and your family.

I will make sure you’re informed about these new requirements and take the necessary steps to protect your interests.  Call me today!