In the last few weeks, there have been a lot of bold headlines about NAR’s $418 million settlement. Unfortunately, these headlines were designed for clicks, not the truth.
As a company that has saved clients over $12 million on brokerage commissions over the last seven years, Yoreevo would be thrilled if the settlement was a fast track to more reasonable levels of compensation but unfortunately that’s not the case.
What does the NAR settlement do?
At the moment, nothing. The settlement was just approved by a judge but no policies will be implemented until later this year.
The entire settlement is 108 pages so there’s a lot in there but here are the main takeaways:
Offers of compensation (“co-brokes”) cannot be made on the MLS
If you’re unfamiliar with how a buyer’s agent is currently paid, check out our blog post, How Does A Buyside Broker Get Paid And Why?
The MLS is an agent-only system where offers of compensation are made. In other words, it’s a system where agents find out how much they’ll get paid on each listing. The MLS will no longer contain this information. In fact, the commission field will be deleted entirely.
Buyer agency agreements are mandatory
Before showing a property, agents are required to sign a written agreement with their buyer that “conspicuously discloses” how much they’ll be paid and how that payment will be determined.
The compensation needs to be an explicit dollar amount, percentage, etc. It cannot be “open ended.” For example, "whatever amount the seller is offering to the buyer" was called out as not allowed.
Agents cannot say their services are free, among others
There are a number of other "Practice Changes" but they’re less significant and/or not consumer facing.
What does the NAR settlement NOT do?
Lower commissions
With headlines like “The 6% commission, a standard in home purchase transactions, is no more”, it would be easy to think that commissions are coming down but many, perhaps most, sellers will continue to pay 6%.
The settlement in no way lowers commissions. It does provide an opportunity for more negotiation, specifically between buyers and their agents, but even that is TBD at the moment.
Prohibit sellers from paying buyer agents
Sellers can and will continue to pay commissions to buyer agents.
Prohibit sellers from advertising co-brokes
The settlement only prevents sellers from advertising co-brokes on the MLS. It explicitly says it does not "prevent offers of compensation to buyer brokers ... off of the MLS."
It also allows the seller to make offer concessions on the MLS as long as that concession does not need to go to a buyer agent.
How does the NAR settlement affect NYC buyers and sellers?
If you ask a glib agent, they’ll say that the NAR settlement doesn’t affect NYC whatsoever because REBNY is not affiliated with NAR. While technically true, it's very misleading. REBNY is facing their own lawsuit and will implement similar, if not identical, policies.
That being said, if and when these policies are implemented in NYC, Yoreevo does not expect dramatic changes.
First on commissions, we expect sellers to continue to offer co-brokes to buyer agents for the simple reason that it’s in their best interest. By offering to pay co-brokes, you maximize your buyer pool and get the highest possible price.
On a related note, we are curious to see how listing agents handle direct buyers. They are not going to do both sides of the transaction for the same commission. In other words, a direct buyer will not be able to capture the co-broke themselves (in the form of a lower price) and there may be little or no incremental cost of using a buyer's agent.
For example, say there's a $1M property where the listing agent is charging 3% and the seller is willing to pay the buyer's agent 3%. A buyer could theoretically go directly to the listing agent and pay $970,000 since the seller does not have to pay that additional 3%. However, the listing agent is not going to do both sides of the transaction for 3%. They may charge 4%, 5% or even the full 6%, reducing or eliminating the incremental cost of using a buyer's agent.
On buyer agreements, we do not think they will have much of an impact with the exception of agents who rely upon lead generation engines like StreetEasy (“Premier Agents”).
If a buyer wants to work with an agent, they’ll have no problem signing the agreement with them.
However, StreetEasy's Premier Agents now face a very difficult task. They will have to get a stranger to sign a commission agreement before meeting them. If we are right about co-brokes not going away, the agreement could be very loose and say that the buyer will never have to pay the agent out of pocket but we still think this will be difficult. It’s hard to see buyers signing anything with a stranger, especially when they do the math and calculate the typical 2.5% or 3% co-broke in dollars.
We do think the NAR settlement opens the door for forward thinking agents. This could be agents working at lower commission rates or flat fees for specific components of the deal such as valuation, negotiations, board application, etc.
Overall though, Yoreevo believes this will hasten market share gains by lower commission brokers. More buyers and more sellers are now focused on cost and will seek out alternatives.
If you are one of those buyers or sellers, reach out to us at info@yoreevo.com or 212-365-0151. All of our buyers receive commission rebates for up to 2% of the purchase price and our sellers save 2-4% compared to traditional brokers.
