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NAR Settlement Creates Lack of Commission Transparency with Buyer Broker Payment Requirement  Challenging Homeownership Dreams

NAR National Association of Realtors® has long been a leading figure, guiding the steps of REALTORS.® However, recent NAR shifts in their policies, particularly the requirement for buyers to pay the buyer broker. The NAR Settlement has sent ripples through the housing market, increasing the price of buying a home. This article delves into the consequences of NAR Settlement decision, exploring how it has potentially placed homeownership out of reach for many aspiring buyers. The settlement increases the financial burden on buyers, and has a broad impact on the real estate industry with ramifications on the American dream of owning a home.

Unveiling the NAR Impact:

The National Association of Realtors NAR settlement agreement has significant implications for homebuyers. Under the new terms, buyers are now obligated to pay the commission of the agent who shows them a property. This stems from an NAR legal settlement with the U.S. District Court for the Western District of Missouri, which mandates that all real estate agents secure a signed buyer broker agreement from their clients. However, it’s crucial for buyers to understand that these agreements do not ensure representation or guarantee that the agent will prioritize the buyer’s best interests. The primary purpose of the agreement is to ensure that the agent and their brokerage receive their commission, even if the seller or the seller’s broker declines to cover it.

The rationale behind NAR decision

The terms may be rooted in the traditional structure of real estate transactions, where sellers typically cover the listing agent’s commission. This structure incentivizes most real estate brokers to focus on listing properties to attract buyers, with only a minority specializing in exclusive buyer representation. The settlement has raised concerns among buyer brokers/agents, who argue that it fails to recognize the extensive efforts they put into assisting buyers throughout the purchasing process, from finding and negotiating properties to scheduling inspections and providing guidance to closing.

The NAR Settlement Agreement is a disadvantage to buyers and their agents

The Buyer Broker Agreement requirement for buyers, allows listing brokers—who represent approximately 99% of real estate brokers and primarily serve sellers—to retain the full commission without sharing it with buyer brokers/agents. This shift is a departure from the practice established in 1993 when the Realtor® database of properties, known as the MLS, required listing brokers to disclose the commission share offered to cooperating agents. Now, the cooperating agent is labeled a buyer’s agent regardless of whether they truly represent the buyer’s interests in the sale.

Historically, buyer brokers have been part of the real estate landscape for decades.

Prior to 1993 buyer brokers traditionally provided representation to investors or high-end buyers willing and able to pay their commission.  The requirement by the MLS to disclose commissions in their database marked a significant shift. This change opened the REALTOR® community to buyer brokers more broadly. Initially, some agents offered nominal $1 commissions, either assuming buyers had the means to compensate their agents or as a strategy to deter other agents from showing properties, thereby securing the full commission set by the seller. Since then, most listing agreements in Florida have mandated the listing agent specify a portion of the total commission to be shared with the buyer’s broker/agent.

Listing brokers/agents are now prohibited from advertising in the MLS the commission amount their sellers are willing to pay a buyer broker/agent. 

WHAT SHOULD HAVE HAPPENED:  The REALTOR® MLS Databases could have been required to disclose to the public the amount of Cooperating and Buyer Broker/Agent commission in their listings.  Most MLS databases have prohibited the listing agent from showing the public/buyer the amount of commission the seller/listing agent is sharing with the  cooperating agents and Buyer Broker/Agents.  It never made sense to keep this information a SECRET from the buyer.

The NAR Settlement Agreement requiring buyers to sign a Buyer Broker Agreement and agree to pay their agent has inadvertently created a new lack of transparency.  It is seen by some Buyer Brokers as a step back for buyer representation, harking back to practices from decades past. Compounding this issue is the misconception that buyers are in a position to pay out-of-pocket for the services of an agent during a real estate transaction, potentially adding thousands to the already substantial costs of purchasing a home.

The settlement does permit the listing agent to disclose any contribution the seller is willing to make towards the buyer’s closing costs in the MLS.

Since these closing costs encompass the buyer broker/agent’s fees, this effectively allows for an indirect disclosure of the funds available to pay the buyer’s broker at closing. While this may seem like a workaround, it inadvertently reveals to the buyer the amounts that can be allocated to their broker, impacting the negotiation dynamics.

This settlement agreement has exacerbated the housing market.

The NAR Settlement has created a  dilemma for many buyers, particularly those who cannot afford the rising prices of homes due to insufficient income to qualify for a mortgage in most States, based on the average price of a single-family home. The National Association of Realtors (NAR) has, in the eyes of some, compounded the difficulties faced by buyers.

To make matters worse, most financial institutions do not allow the buyer to finance a buyer broker commission as a cost of obtaining the mortgage.  

However, they do allow the seller to add the price of the listing agents commission into the listing price of the home.  Who really NEEDS to be able to finance the real estate brokerage fee into the transaction now?  The buyer or the seller? And what if financial institutions did allow a 2nd commission to be added to a homes sale transaction.  Will that decrease or increase the cost of the housing opportunity for the buyer?  Did NAR really think the listing agent would give up a portion of the commission from the seller if they no longer had to share it with a cooperating agent?  The ability to finance brokerage fees can significantly impact the affordability and accessibility of housing. It is crucial to scrutinize the established practices and their alignment with the principles of equity and fairness in the real estate market. 

The year 2020 saw a unique trend emerge as listing brokers began purchasing their own listings.

This was largely attributed to the COVID-19 pandemic, during which buyers were reluctant to enter homes, and sellers, especially those residing in the listed properties, were hesitant to allow showings. This shift in behavior reflects the broader impact of the pandemic on the real estate market, altering traditional practices and introducing new challenges and strategies for brokers and agents.

COVID-19 impact on the housing market.

During the COVID-19 pandemic, large real estate firms began receiving cash purchase offers from foreign investors, allowing sellers to bypass traditional selling challenges such as home repairs and delayed closings. This trend contributed to a significant portion of U.S. real estate being acquired by foreign entities and investment companies. These investors, often in collaboration with major real estate firms, outcompeted domestic buyers for properties by offering cash payments from 2020 to 2024.

The current settlement agreement permits listing brokers to publicize their commission cooperation terms on their websites.

Despite this, there has been a noticeable lack of transparency in commission disclosures across listings. Industry professionals have observed that up to half of the property sales in certain regions are now conducted outside the Multiple Listing Service (MLS), through what are known as “pocket listings.”

The National Association of Realtors (NAR) has become a significant political contributor in Washington

NAR is second only to the U.S. Chamber of Commerce. In recent years, their lobbying efforts have been focused on maintaining favorable conditions for investors, which has led to increased single-family home and rental prices. There has been little progress in reducing excessive real estate taxes or insurance costs for homeowners.

The reliance on third-party property valuation systems by brokers, buyers, and sellers has been sanctioned.

And brokers have been permitted to purchase listings directly from sellers, subsequently flipping them to investors. This practice has resulted in double commission earnings for brokers but has also been implicated in the artificial inflation of property prices nationwide. The implications of these developments have had a profound impact on the U.S. real estate market, affecting both market dynamics and housing affordability.

Beverly Howe, is the owner/buyer broker licensed under the US Trademark of Florida Buyer Broker™. 

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