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Chances are, you’ve seen some recent headlines in the media regarding the National Association of REALTORS® (NAR) and a settlement that claims how real estate agent commissions are paid will forever be changed. These headlines are often stating that sellers will no longer have to pay for the buyer’s agent commission and that buyers will now be directly responsible for making this payment. There are also claims being made that these changes will reduce the cost of homes and make homeownership more affordable for the masses. Although this settlement will certainly bring change to the industry and for home sellers and buyers alike, there’s a lot of false information being shared right now. So, at TK Homes, we want to take just a moment and address this settlement to ensure that as the consumer, you have the facts versus just seeing clickbait headlines.

 

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1. Sellers Will No Longer Be Paying the Buyer’s Agent’s Commission

It is important to understand that the settlement is not stating the seller will not be paying for a buyer’s agent’s commission, or that they are not allowed to. What the settlement is stating is that a co-op commission will not be advertised in the MLS. However, this does not mean that they cannot offer or agree to pay for a buyer’s agent’s commission through methods other than disclosing it in the MLS; they simply cannot advertise it in the MLS.

Many buyers struggle to save enough money for the down payment and closing costs associated with their mortgage, so having to come up with any additional funds to cover a buyer’s agent’s commission could make purchasing a home out of the question. So, sellers being willing to pay for the buyer’s agent’s commission allows a larger pool of potential buyers to be able to purchase their home. This approach also allows buyers to wrap that expense into the mortgage and pay it over the lifetime of the mortgage versus having to come up with the additional funds at time of purchase. By having more buyers qualified to purchase a home, home sellers are more likely to attract a buyer and sell their home at their desired price.
 

2. Buyers Are Now Responsible for Their Buyer’s Agent’s Commission

The settlement is in no way stating that buyers will be required to pay for their buyer’s agent’s commission. However, it will now be the responsibility of the buyer’s agent and the buyer to negotiate how this expense is paid. In the event that a buyer has the funds available to pay for the buyer’s agent’s commission in addition to the purchase of the home, this could put the buyer in a stronger buying position if that home receives multiple offers or if a seller is unwilling to negotiate the buyer’s agent’s commission as part of the contract.

Previously and prior to any of these class action lawsuits, there were some buyers that did not have funds to cover their closing costs, and they were still able to purchase homes. What these buyers had to do was negotiate at time of contract a dollar amount in Seller Concessions that they could use to cover their closing costs. These Seller Concessions were just another negotiating term that buyers and their agents had to negotiate at time of contract. The buyer’s agent commission will be treated the same way. If a buyer does not have the funds for the expense or would like to allocate these funds elsewhere, they will be able to negotiate how this expense is paid at time of contract. In some scenarios, this approach could hurt their offer and chances of getting a contract accepted, but at no time is any buyer’s contract guaranteed to be accepted, regardless of terms.
 

3. Home Values Will Come Down With This Settlement

Real estate commissions have never been in addition to a home’s value and have no effect on what a home is or isn’t worth. Commissions have always varied from one home for sale to another, and the price never reflected that home’s specific real estate commissions. On top of this, I saw another agent’s blog that mentioned potentially the most important aspect: if a home was originally worth $500,000 before this settlement, and the seller is unwilling to pay a buyer’s agent’s commission, that does not mean the seller believes their home is now only worth $486,000 and will accept this amount when the neighboring home sold recently for $500,000.

If we do see home values drop, it will be due to a lower demand for homes from buyers. This could be the result of buyers dropping out of the market if they do not have the funds to cover a down payment, closing costs, and the buyer’s agent commission. However, before we see this happen, it would be my guess that the buyer’s agent’s commission will be negotiated into the purchase contract at time of going under contract. Therefore, it’s my believe and most industry expert’s belief that home values will likely not be greatly changed due to this settlement.
 

4. This Settlement Is Finalized and Already in Effect

The final fact that we want to ensure everyone understands is that right now, at the time of writing this article, the settlement is a proposed settlement and still has to be approved. Once approved, the earliest we’ll see any changes go into effect is midsummer, likely in July. There’s a lot of moving parts and with any big change a lot of unknowns right now. However, rest assured, at TK Homes, we’re going to work hard to ensure we’re staying up to date on the facts and continue to serve our buyers and sellers regardless of the outcome of this settlement.
 

 

Change is inevitable, however, how we respond to change is completely up to us. At TK Homes, we are going to watch and listen closely to the new rules, we’ll adapt our business to ensure we are following the new rules and continue to provide the highest level of service to both our home sellers and homebuyers. Be sure to subscribe to our monthly newsletter, follow us on Facebook or Instagram, and reach out to any of our agents to stay up to date with how this NAR Settlement plays out and how it affects you as a home seller or homebuyer. As always, please let us know how we can help you reach your real estate goals now and in the future!

 


~ Written by CEO/REALTOR® Trevor Kohlhepp

 

 

 

 

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