Some have heard the news and some have not, but NAR (National Association of Realtors®) is working on settling a massive law suit. If you have heard about it, you also may have been led to believe real estate is changing. If you haven't heard and you Google it separately, you too may be led to believe misconceptions. 

We hope to set the record straight.

1. Commissions.

Commissions have always been negotiable. We were surprised to hear this as a foundation of the lawsuit since many people have asked about paying less than what they believed, less than what an agent proposed, and other negotiable terms. 

Prior to the internet, social media, text messages and other newer forms of technology, sellers hired a Listing Agent to list their home. Prior to the early 1990s, it was his/her responsibility to find the buyer. However, they worked for the seller and collected a commission to complete the sale without having to split that commission with anybody else. While not always the case, it was often 6%. With more and more technology available, it remains the Listing Agent's responsibility to find the buyer. While some relied on the 3P's of selling - Place a sign in the yard, Place it in the MLS, Pray for an offer, great agents have done more for their sellers to expose their listing to the most people possible.

Buyer's Agents have given an opportunity to not only help buyers find their home but also fully represent the buyer separately throughout the transaction. Arguably, this helped bring more buyers to the market as some were always concerned they were not properly represented by the seller's agent. And, with the invention of a dedicated Buyer's Agent came a split commission. No rule or law forced offering a commission to a Buyer's Agent. It was simply the best way to bring the most people to your sale.

Moving forward, this will be disclosed even clearer than previous forms disclosed. Also, moving forward, we can no longer place what commission is being offered within the MLS (although currently other mediums such as social media, private websites, etc. will allow it).

2. Disclose! Disclose! Disclose!

Brokers and their subsequent agents must be very clear as to how much commission is being charged and must agree with a new document should anything change. For example, when listing a property, the Listing Agent will remind the seller that commissions are negotiable. They will agree to the total commission being charged for the sale and although it was always in the agreement, they will have discussed what amount is being offered to the Buyer's Agent. Note: there is no rule saying what is to be offered to a Buyer's Agent. The seller can opt to not offer any commission to a Buyer's Agent, require the Listing Agent splits commissions evenly, and numerous possibilities. 

Another example,  a Buyer's Agent wants 2.5% to represent a buyer and finds a listing that is only offering 2.25%, a new agreement must be signed if they are not going to require their buyer to cover the difference. In the past, they could have just stated they wouldn't require their buyer to pay the 0.25% difference through text or email. Conversely, if they had found a listing offering 3%, they would have to sign an addendum or new agreement as well. If not, that 0.5% will go back to the Listing Agent and not a benefit or credit to the buyer or seller.

3. Contract Signing.

This is more applicable to buyers than sellers. Sellers sign an agreement when they're ready to list the property. Buyers will now HAVE to sign some form of Buyer's Agency Agreement prior to seeing ANY property. In fact, while not required, there will be some agents asking for an agreement to be signed to view an open house too.  The agreement will specify what commission the agent and buyer have agreed to as well as some other terms regarding their search. 

Contracts are required but as a buyer you should remember a few things. 1) timelines are also negotiable. We typically only signed agreements for 30-60 days for the past 7 years. I've heard of agents and clients signing as much as 1-2 year contracts. If needed, you can sign an agreement for as little as 1 day if both the buyer and agent agree.  2) you can still have your agent paid by the seller. Discuss and even consider writing on the contract you will only see homes in which you do not have to come out of pocket for the commission. Just note, some Listing Agents may not charge what they used to and this may limit your possibilities. 3) this agreement is between the buyer and the Buyer's Agent. The selling side has their own agreement with their own agent and that is not impacted by your agreement with your agent or if you decide to buy without an agent. The seller and their agent have agreed to a commission and possible split that can only be paid to a licensed real estate agent. Working without representation or having a "discounted" commission with your agent will not be represented in your purchase price of the home. 

4. Possible Ways Of Commission Payment.

You've found a home, but the seller is not offering a commission or maybe the amount you agreed your agent would collect. Of course you can add the commission to your closing costs and pay more on the day of closing. This has happened and will continue to happen. 

An alternative will be making commission a part of your purchase agreement. Keep in mind, the seller can always deny the request, but you now have the ability to make it a contingency or your purchase. In the past, you could not do so. You can also ask for a seller's concession to be dedicated for the Buyer's Agent commission. The seller may require you to pay above list/offer price to accomplish this and especially while we remain in a seller's market. Therefore, the concession may not be as great of an option as planned, but don't rule it out.

The VA has already made some changes to allow compensation to an agent as a part of their mortgage. There is a belief (but no factual evidence) lenders will likely start to allow up to 103% financing or something similar so buyers can still receive representation and not have to have cash on hand to pay at closing. Again, this is speculation and should not be assumed to be true at the time of this publication.

5. Personal Beliefs

Some might say we shouldn't put this out there. It's speculative, personal beliefs and can not be relied upon. However, as the experts in real estate and trusted resource of information we might as well publish how we feel the NAR settlement will impact real estate.

Disclosure will be better. While forms in Michigan have always stated what and how commissions are to be paid, they'll be rewritten and focused upon.

It has been difficult to obtain a listing in the last couple of years. With rates much higher than they were, many sellers are staying put. This has already made it more difficult for both agents to obtain clients and buyers to find housing. With the settlement changes, I believe some agents will attempt to be "discount" to obtain listings. They'll likely charge 2-3% for themselves and not offer compensation to a buyer's agent. I'm unsure why they wouldn't do that now but as more and more agents have left the industry since 2022, this will be some agent's efforts to remain "employed" for a while.

Some buyers will go unrepresented. Whether it's misconceptions from the media and even other agents or it's the inability to potentially pay their own agent, buyers may go house hunting through listing agents and open houses. The true sadness in this event will be the buyer not only not having somebody help with their legally binding purchase agreement, earnest money deposit, inspection, appraisal, and more but also that they aren't receiving a discount to do so. As a reminder, the seller signs their own agreement with a Listing Agent. If they agreed to sell for 5%, all 5% will remain with the Listing Agent if the buyer does not have their own representation. 

In the long run, we anticipate things to return to how they are today. The best way to get maximum exposure to buyers is to offer compensation to a Buyer's Agent.