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Buyer's Agents have to negotiate their commission with the Buyer
Starting with August 17th, 2024 buyer's agents have to sign an agreement with the buyer in order to receive their commission from the transaction. The seller's agent cannot split his/her commission with the buyer's agent anymore. This is a significant change in the real estate industry. This agreement is the result from allegations of antitrust violations against the National Association of Realtors (NAR). It affects commission structures and necessitates written agreements between agents and clients. Buyer's agents now face the challenge of demonstrating their value to prospective homebuyers.
What is the Lawsuit about?
The lawsuit against the National Association of Realtors (NAR) revolves around accusations of antitrust violations concerning the organization's policies regarding real estate agent commissions. A group of Missouri home sellers argued that the NAR's rules mandated inflated fees for agents, particularly regarding the commission paid to the buyer's agent. These practices, according to the lawsuit, violated federal antitrust laws. As a result, the lawsuit sought damages from the NAR, with potential triple damages of up to $5.4 billion.
What changes are being made to the NAR’s rules?
Listing agents are prohibited from using the Multiple Listing Service (MLS) to offer commissions to buyer’s agents. This means that listing agents can no longer specify commissions for buyer's agents through the MLS. Agents working with buyers are required to enter into written agreements with homebuyers, specifying service charges. This ensures clear communication regarding agent service fees to prospective homebuyers.
When will the new NAR rules take effect?
The rule changes are set to take effect on August 17th, 2024.
How the verdict and NAR settlement are affecting buyers' agents?
The issue arises from the fact that buyers would now be responsible for covering the commission out of their funds, as lenders are unlikely to include this expense. This situation presents two possible scenarios: either buyers will embark on their property search to avoid paying the commission, or buyer's agents must emphasize the value they provide beyond simply providing property information. While the importance of having a representative negotiate and handle transaction documents on behalf of the buyer is significant, buyers may not fully appreciate this value until they are in the process of making an offer and are faced with the complexities of negotiating price and purchasing conditions.
The challenge for buyer's agents lies in demonstrating their value to buyers before an actual transaction occurs. This necessitates a more comprehensive marketing approach, requiring buyer's agents to prepare detailed packages to attract potential buyers.
How can Buyer's Agents show undeniable value to Buyers?
A competitive edge can be established when buyer's agents offer insightful analyses of potential property enhancements and value-added opportunities post-purchase. Agents may leverage online resources to access property information, thus demonstrating their commitment to providing valuable insights and guidance throughout the buying process.
How can buyer's agents show undeniable value so that the buyers would sign a contract with them?
If before this verdict, the Realtors would prove their value and put their time once a Buyer decided to write an offer for a property, now the agent's Realtors have to put a lot more time into marketing their services so that buyers sign a representation contract with them. This is new to them. It requires a lot more money they need to put into their marketing budget. The good news is that, due to the technology-enabled property data, there are a lot of new resources available online with important information for Buyers that Realtors have access to and are aware of. One of them is being able to understand and evaluate the opportunity property for sale. It gets difficult to make sure that you're not overpaying, and that you don't miss an opportunity to add more building area and units so that you'd have a profitable investment. This type of information requires a lot of experience in the field that most first-time home buyers don't have and they rely on agents, architects, and contractors. It's a lot to cover when you tour a lot of properties. The research is time-consuming and getting clear answers becomes too expensive.
A way around this, when you're looking to purchase a property is to rely on companies that are focused on feasibility studies. They offer free tier products that get you started and put you on the right track. You search their database to the specific address you're interested in and they give you instantly the possible opportunities. If it looks like the property has an opportunity to add value to it, then it makes sense to find out how much it'd be to see if the asking price is too high, low, and so on.