KW United - Falls Church - Patricia & John Seggerman

The Legal Settlement: What Does it Mean for Buyers and Sellers?

Realtors End a Long Legal Battle

Isolated justice scales symbol on white background

Isolated justice scales symbol on white background illustration

This past spring, the National Association of Realtors (NAR) reached agreement with plaintiffs on a settlement that will affect how residential real estate services are delivered to buyers and sellers. We are regularly asked about this settlement, which takes effect on August 17, 2024. Allow us to outline the agreement, including its background, and its effects on our future clients.

Up until about 30 years ago, buyers did not often have a realtor representing their interests in a residential purchase transaction. Back then, the listing brokerage (representing the seller) had an agent working with the seller and also a subagent who assisted the buyer but still represented the seller’s interests. These two agents would often split the compensation paid by the seller. With the advent of buyer agency, this 2-agent compensation model remained, but the buyer’s agent actually represented the buyer’s interests. The listing brokerages offered compensation to the buyer’s agent in the multiple listing service (MLS). In part due to circumstances related to this unusual holdover compensation system (a seller paying someone working against their interests), a series of lawsuits in recent years sought redress.

The settlement agreement has many provisions, but two seem to be the most significant. The first prohibits the present-day common practice in which a listing brokerage offers a specified buyer agent compensation by advertising it on the local MLS. Beginning August 17, a seller can still compensate a buyer agent, but brokerages can no longer offer a commission on the MLS. The second provision requires all real estate agents representing buyers to have a written representation agreement.

Realtors in our brokerage and throughout the country are currently undergoing extensive education and training to prepare for the imminent new reality. The new requirement of a written agreement to represent buyers is not new for us. Realtors in Virginia and in 16 other states already require such an agreement in writing. What will be different beginning next month is that it will be less likely that a seller/listing broker will offer buyer agent compensation up front. Instead, the buyer will have the ability, in their offer to purchase a home, to negotiate with the seller for the seller to pay part or all of the buyer agent compensation.

We are well-prepared for this new landscape. Our experience has been over many years that buyers we represent are willing to pay for our professional services. We will certainly be more cognizant of the imperative of detailing the value we bring to buyers in the Northern Virginia’s competitive real estate market. Indeed, we have assisted many buyers structure offers that have enabled them to compete and win against other bidders. Moreover, it is likely that sellers will now pay a substantially lower compensation, allowing them more flexibility to negotiate with buyers.

An unintended effect of the settlement is that buyers who are less well-off financially may now be disadvantaged as some may not be able to afford to compensate a realtor for their services. Such buyers can certainly propose that the seller pay for a buyer’s agent, but if a seller is reviewing multiple offers, they would be more inclined to choose the offer that does not involve compensating a buyer agent.

There remains a lot of uncertainty as to how the residential real estate business will operate once the settlement’s terms commence. Regardless of the final outcome, we are confident that we will continue to deliver to buyers and sellers the same kind of well-informed services shaped by our many years of experience.

Wishing you a great Summer 2024!

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