NAR Settlement: Debunking Myths for Buyers and Sellers

I’ve been getting a lot of calls about the new proposed NAR settlement so I hope this blog clears things up for anyone who isn’t sure what this may mean for you as a buyer or seller. Still have questions? Reach out any time. 425-495-0926

I hope spring’s warmer weather and longer days are bringing a smile to your faces and hearts. What’s dampening my spirits is not the occasional spring shower but rather the misleading headlines about the recent National Association of REALTORS® (NAR)  settlement. As is common in today’s media, much of the information is simply incorrect so I’d like to provide important context and clarification.  

First and foremost, understand this is a PROPOSED settlement and does not take effect until a judge signs off on it. The changes outlined in the settlement are all about transparency, by making sure buyers have control over what their agent is being paid and that sellers are in full control over whether and how much they’re paying the agent who brings them a buyer. To be clear, I am in favor of increased transparency and proud to be a member of the Northwest MLS which is not associated with the National Association of REALTORS®. Still, as I elaborate on in my Market Minute, our local MLS had the foresight several years ago to proactively make changes to improve transparency and further support competition and choice in the marketplace. This included the “de-coupling” of buyer and seller agent compensation, publishing the compensation, if any, so it’s visible on third party sites like Zillow AND allowing for that to be any amount, even $0. Most recently, also consistent with one of the proposed rule changes, is the new state law requiring buyers and their agent to enter into a written agreement which includes terms of their compensation.

In addition to summarizing the key takeaways in my Market Minute, I’d like to provide further details, backed up with data to bust the following myths I’ve been hearing since the proposed settlement was announced

Myth: There’s a “standard” real estate commission of 6%.

Fact: Commissions have always been and will continue to be negotiable.

Digging Deeper: The following chart from RealTrends shows the fluctuation in real estate commissions averages over time. While the national average tends to ‘hover’ around 5-6 percent, NAR has never dictated a commission ‘standard’.

Additionally, flat fee brokerages, those that offer rebates to buyers, and FSBOs (For Sale By Owner) have long been available to buyers and sellers. Sellers may be drawn to FSBO as a way to save on paying a buyer commission or because they underestimate the complexities and nuances associated with managing the sale of their home. Data shows that they tend to sell for less than if they had agent representation while 75% of the time still paying a buyer’s agent.

Finally, despite the existence of discount or flat fee models, the majority of market share continues to belong to full-service brokerages. Consumers have and will continue to have choices, and the data shows that the majority select full-service representation over discount brokerages for professional advocacy and guidance throughout the most complex and costly transaction of their lives.  

Myth: If enacted, the proposed NAR settlement will reduce home prices.

Fact: Home prices are dictated by market conditions and have nothing to do with commissions.

Digging Deeper: As this CNN article states, There’s more bad news for potential homebuyers:  home prices nationwide have hit another record continuing to make it difficult for homebuyers. Locally, where we have a massive shortfall in supply needed to keep up with demand, we continue to see home prices rise – even since our MLS proactively enacted in 2021 one of the proposed NAR settlement rules in which a seller can choose NOT to offer compensation. The dip in median home prices in the chart below, from which an upward recovery is already underway, was due to the adverse impact of steadily rising interest rates, not anything to do with commissions.

Myth: Not offering compensation to the buyer broker will save sellers money.

Fact: Offering compensation ensures maximum exposure to potential buyers and data shows homes sell for more money and in less time when compensation is offered.

Digging Deeper: Offering compensation is a critical consideration for sellers as part of an overall marketing strategy to sell their home. Keep in mind that buyers whose agency agreement with their broker has an agreed upon fee that is not covered through compensation offered by a seller may ask for their broker to be compensated as part of the offer terms OR simply choose NOT to see the home, reducing potential buyer pool. Whether and how much compensation to offer will be the seller’s choice, but the data backs up the facts.

Myth: All buyers will benefit from the changes proposed under the settlement agreement.

Fact: Buyers who cannot afford to pay their agent, or VA buyers prohibited by law from paying compensation, may now face additional challenges in their pursuit of homeownership.

Digging Deeper: This to me is the most concerning consequence of the proposed settlement. As Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals stated in this recent National Housing Conference article: Are-First-Time-Homebuyers-the-Big-Loser-in-the-NAR-Settlement?:  

“Forcing buyers to pay out-of-pocket for an agent to represent them through the process would only exacerbate affordability challenges and put homeownership out of reach for millions of would-be buyers… a ban on broker cooperation would benefit no one but the wealthiest among us.” 

Currently there are no provisions for a buyer to finance their agent’s compensation into their loan. Furthermore, VA buyers are prohibited by law from paying compensation! As a result, I fear that a large pool of buyers may choose to try to represent themselves in the most complex and costly transaction of their lives. Alternatively, they may approach the seller’s agent directly which could lead to sub-par representation vs. if they had a buyer broker advocate on their behalf. The irony in all this is that buyer agency came into existence in the 1990s to combat this very dynamic of agents working for the seller also representing a buyer.  

In today’s fast-paced world where we are all spinning multiple plates in our daily lives, it’s easy to scan and take at face value the news headlines. But as we already know, misinformation in the news is nothing new and savvy consumers know to get the facts so they can make an informed decision. I hope I’ve provided some clarification and am always happy to chat further should you have any questions.