Navigating the real estate market as a first-time homebuyer can be challenging. Recent changes resulting from the National Association of Realtors® (NAR) settlement have added complexity to the process, even for experienced homebuyers. To help you prepare for the new homebuying process, we’re reviewing details of the NAR settlement, its implications for homebuyers, and offering practical advice on working with real estate agents and preparing to buy a home.
What is the NAR Settlement?
The NAR settlement stems from a court ruling aimed at increasing transparency and fairness in real estate transactions. Traditionally, sellers’ agents paid a portion of their commission (standard 5% to 6% paid by the home seller) to the buyers’ agent (standard 2.5% to 3%), often without explicit agreement from the buyers. The new rules, effective from August 17, 2024, require homebuyers to sign a mandatory agreement with their agents, detailing commission structures and other legal obligations upfront.
3 Key Changes of the NAR Settlement and How They Impact Buying a Home
1. Mandatory contracts to work with a real estate agent to buy a home:
Buyers will be asked to sign a detailed contract with their real estate agent before touring a home, including both in-person and live tours. These contracts outline the commission structure and any additional fees the buyer may incur. Before the settlement, 16 states required homebuyers to sign buyer representative agreements with a real estate agent before they submitted an offer, so this is not a completely revolutionary development in the homebuying process.
2. Negotiate your buyer’s agent commission:
With buyers now responsible for funding their agents’ commissions, there’s an opportunity for direct negotiation on fees, which could lead to lower overall costs. The Consumer Federation of America has recommended that buyers insist on paying a flat fee of no more than 2% of the home price to their buyers’ agents rather than a commission based on 2% of the purchase price of the home.
3. Contracts are legal documents that must be reviewed:
Currently, there is no standard format for the new contracts. The National Association of Realtors has advised member agents that “agreements should be organized, written in understandable terms for all parties, and use a clear, readable font size. MLS Participants are cautioned to avoid pre-filling key terms like the length of the agreement and compensation and to avoid changing provisions without legal advice.”
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