Real Property St Pete

5 Things to Know About the NAR Settlement

• David Vann • Season 2 • Episode 8

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David and Julie discuss the new NAR Settlement Agreement.  What Buyers and Sellers need to know about the changes to the landscape of the residential real estate  business

  1. Buyers need a Buyer Broker Agreement with a Realtor to see a home offered in the MLS
  2.       How is the Buyer’s Agent Compensation Negotiated
  3.       Who pays the compensation for the Buyer’s Agent
  4.      Can the Compensation for the Buyer Agent be Financed?
  5.      Why is it likely for the seller to continue paying the buyer's agent's commission?  

Want to work with us? David Vann can be found here, and Julie Jones can be found here! Reach out! We're nice, and we'd love to hear from you!

I like that. Hey, let's go. Hey, let's go. We've, uh, skirted around this conversation a bit and now we're going to dive in. Right, because it was unclear what was going to happen. It's still a little bit unclear. And that's not changed. Yeah, that's actually the same. So, on August 17th, 2024, the, real estate commissions for buyer's agents was removed from the MLS. And there was a requirement for agents showing property to buyers to have a signed agreement. That's right. And for us, it actually started August 6th with the commissions being removed, but August 17th, it was a national. I love that you're clarifying that because sometimes people feel like it's just us or Florida or, you know, whatever, but we've talked about that in some of our prior episodes that 13 or 14 states had this process in place for many years. Right. And now nationally and in Canada, any buyer who's interested in looking at property will have to sign an agreement of some sort with their agent. That's right. Or the agent showing them property. Right. And the listing agent can open the house for you to see it. But they represent the seller. So you've brought something to us today. What is it? So, I decided to sit down after spending lots of hours. And I think we all have spent lots of hours thinking about what we need to explain to our clients and what's important for them to know. I mean, there's a lot to know about the strategy of how you go through making an offer, how you go through going to see houses, how you hire an agent. To be your buyer broker, similar to how you do for a listing agent. So, you know, those are very parallel processes now. that, I love that point, David, because, you know, when we first started in this industry, that is what happened when you, we're going to work with an agent. You actually met with them and talked about what your goals are. Were and what the agent could do for you. You talked about the criteria and you actually made a plan. You talked about the process and how you would help them through that process. And I think these new rules, are going to help us get back to that and not into the fast and furious, uh, will you meet me at a house and show it to me? Yeah, that's right. That's a win win for consumers. That maybe people aren't paying attention to, which is then they know if that agent is the right person to help them based on their goals. Yes, I mean, it makes much better buying decisions if you know what you're looking for upfront and if your agent does and if your agent has an idea of what are the right neighborhoods. And if that agent is a good fit for you personally based on their experience and what you're looking for, based on personalities, all of the things. Well, when I was doing some writing, cause you know, I like to write, I ended up in a spot where I was listing out all the things. All of the questions you should ask your agent to see if it's a good fit. How many questions did you get to? I had about 15 or 20 questions, but I think that that could be narrowed down some, but I was sort of in the flow and I put out about 15 or 20 questions and we'll save that for another podcast. Okay. I love that. Yeah. Yeah. Yeah, it was fun. What I wrote about was the five things that every buyer should know about the new NAR settlement agreement. And I say buyer there, but really these are the things that have changed about the landscape of our real estate business. So. It's what the buyer should know, but it's also what the seller needs to know that the buyer knows and what the buyer is trying to do. I mean, so it's not just one sided. Everybody needs to know what the buyer is doing because the buyer has the money. It's never been clearer that the buyer has the money. What does the seller have? The property. That's right. Yeah. They have the rights to the property. What do they bring to the closing table? Yeah. I was going to say their deposit slip, that's just me being funny though. You mean their wiring number? Yeah, well, yeah, exactly. Couldn't, I was like, I don't know if that makes sense. Their deposit slip. I like that. That's funny. So I would love to just outline the five tips. Okay. That you've come up with. All right. The first is a buyer needs a buyer broker agreement with a realtor to see a home offered in the multiple listing service. That's right. That's number one. The second is how is the buyer's agent compensation negotiated? Yeah. Very good question. Number three is who pays the compensation for the buyer's agent? Mm-Hmm. Great question. That's really pretty important and, and a lot of what this is about. Number four, can the compensation for the buyer's agent be financed? Hmm. That's a good one. That's a really good one. And it's sticky. And some people say no, and that's a yes. And number five, why is it likely for the seller to continue paying the buyer's agent commission? Yes. Those are all interesting questions. Some of them market driven. I think that, you know, number two, you said, how is the buyer's agent compensation, negotiated? And that's a, we could spend a few hours on that one. And I, I think that a lot of things that people talk about is that the agent compensation and the listing agent compensation have been decoupled. That's such a good description. Yes, they are independently negotiated at different times But eventually when you go to contract, that's understood. It's the best point to make along with the fact that the commission is now, Out in front of everyone. So it's disclosed to buyer seller, both agents. It's a very clear picture, which was what the goal of the settlement was. I just love going back to the fact that the buyers always paid the buyer's commission. Cause they're the only people who brought the money to the table. Right. I was going to say, why don't you explain that also another way? You just said it, but. Right. Well, the other way is just that when you come to the table, we joked about it earlier, the seller brings the property and the buyer brings the money. Yes. And they make an exchange. Right. And so. I think that's the most difficult thing for consumers to wrap their head around though. Right. And that's why I was like, let's say it a different way. Yeah. Well, the only time the seller brings money to the table is a short sale. We don't have too many of those. No, we don't have any short sales anymore because everybody's got tons of equity, but we were in the business when short sales were happening. And the seller had to bring money to the table. We talked about it all the time, but now the seller never brings money. They just bring the title to the property. So let's get into it. Yeah, let's do. So the first subject was the buyer needs a buyer broker agreement in order for a buyer to see a property. They need to have a signed agreement with the realtor before the property is shown. That agreement is called an exclusive buyer broker And it is the preferred way to engage the long term services of a real estate professional or realtor Historically a buyer or a consumer could just call up and say hey, I want to go see this house And the realtor, whether it be the actual listing agent that had that property or someone who picked up the phone or someone who got your name from a friend that agent might say, okay, let's go. And they would check the multiple listing for the instructions to show the house and the commission, the commission being offered and head out the door to meet you. That's right. And it worked like that for a hundred years. But now the requirement is that you must have a brokerage agreement signed with the client before you go and show a property. That's one of the items which is now required within the agreement between the national association of realtors and the department of justice to settle the class action suit. It's a big change for realtors. And if you've bought houses in the past, it's a big change for you too. Number two. Number two. How is the buyer's agent compensation negotiated? The next change which affects both the buyer and the seller is the negotiation around who will pay the buyer's agent compensation. Historically, the buyer brought the money to the closing table and the seller brought the title to the property. Just like you said, they made an exchange or a sale. Today, the compensation to the buyer's agent is unknown to the seller. Similar to the listing agreement and the listing agent's compensation being unknown to a buyer. Right. Because you now have a contract with the agent representing you as a buyer. Okay. Yes. And that contract is between you and that agent. Right. And you've agreed that the services being provided by that buyer's agent are worth the compensation Because I like that today the compensation for the buyer's agent is unknown to the seller. And then Because it's driven by your agreement. That's right. So now the buyer's agent commission is agreed upon between the buyer and the buyer's agent. It's unknown to the listing agent and it's unknown to the seller. So that's a private agreement and the buyer is committed to paying the buyer's agent the amount of compensation that is in that agreement. And that's a part of the agreement. What is the type of property? Where is the property? How long is the agreement for and how much is the compensation? Those are all parts of that buyer broker agreement. That's, what's in the buyer broker agreement. The compensation is negotiated at the initial time of engagement between the buyer and the buyer's agent. And they settle on the contract just like you would on the listing agent. And they have the consultation that you're talking about and they're working together. They have an agreement and that's what we've had before, but it has fallen out of practice, but now it's mandated. I'd say let's stop there with that, too. So, the third point is, who pays the compensation for the buyer's agent? Hmm. Good question. Seems to be in flex at this point. Right. And could be market driven. I think it could be. In my opinion, and we may see things differently, was that the buyer pays direct for their agent. In practice, there really isn't a lot of things that are happening different. The offers that I've received, the seller's still paying the buyer's agent. Right. And, and it's been openly in the last few days, in the last week, the amount of compensation being paid by the seller to the buyer's agent is an open book. It's a verbally communicated. number, but it's being shared and the sellers are open to doing that. I mean, we don't have any pending listings. If it was a seller's market and there weren't enough active listings, it would be a different situation. People would be saying, Hey, you know, I'll pay my agent. You can stay in the house for a month after closing. Don't worry about those repairs. We got that. Kind of like back in COVID dates where buyer was just pay for everything, right? I'll pay for title. I'll give you an extra 50, 000, right? I mean, well, here's my escalation clause. There's no limit, but that's, that's a seller's market. So the seller's going to be like, you go ahead and pay your agent. Well, I think it's a good point because in my view, I think it's important to say that the seller paying the buyer's agent commission is your marketing costs to market the property to more people. Right? That's right. So you're saying the listing agent will have more to spend? No, I'm saying it's as a seller, it's part of your marketing costs to incentive the buyer, incentivize the buyer, right? And there's no question you are incentivizing the agent to bring buyers to your property and look, incentivizing the buyer to consider your property too, because they'll consider covering your buyer's agent fee. That's right. I was showing property last week. Lower cost properties and the guy texted me and he said sellers paying four percent Wow, yeah, I mean he's having a hard time selling the house and he says hey Sellers paying four percent. I'm like, wow, I'm gonna have to adjust my buyer brokerage agreement Up to four percent so I can get paid But that's that we're down. I'm stepping on a subject that is just one extra thing there but but anyway point being I What you're saying is absolutely true. Sellers want to incentivize buyers agents to bring buyers to the property. So they offer them more money. Right. Well, in that scenario, and we can decide if we want to cut that, you know, let's think about that one. You're talking about percentages, but in a scenario where the seller's offering more than your buyer broker agreement, that money can be used for other things, closing costs, rate buy down, number of different things, credit. If you're paying cash, a credit towards your. Actual bottom line. It's really an advantage. And it's one of the reasons why it's really beneficial to consider who you have a signed agreement with and what their negotiation skills are like. Right. So let's talk about what's on the paper here when the buyer and their agent find a home that meets their needs. The buyer's agent writes the offer with a price in terms which are satisfactory for the buyer. They present the offer to the listing agent and the listing agent will present that offer to the seller. The seller may have authorized the listing agent to provide an offer of compensation to the buyer's agent. It may be more or less than the agreement. The buyer broker agreement. At this time, it is not required for the buyer or the buyer's agent to disclose the terms of the buyer broker agreement. Alternatively, the buyer may include the seller's payment of the buyer's agent compensation as a term in their offer. They can ask the seller to pay. In this case, the seller has the option to negotiate on the purchase price and, or the buyer's agent compensation. The negotiation of who will pay the buyer's commission may continue during the contract negotiation and how much the buyer's agent will be paid was memorialized in the buyer broker agreement And may not be disclosed to the seller. But it is still possible to negotiate and ask for the seller to pay an amount on behalf of the buyer. There's a question on whether the buyer's agent compensation Can be financed right and I think that's a great question And in my opinion if the buyer's agent commission is included in the purchase price, well, yes, it can be financed because it's a part of the purchase price. The seller pays it and it's a part of what, is financed. So in that particular example, it's pretty cut and dried and it's exactly the way it was before. Yeah. It's really a closing cost for the buyer. Right. But it's included in the price of the house. Right. Which it is anyway. Right. So it gets financed. Yes. So that's a pretty simple answer. I don't even think we're oversimplifying that answer, but there is, another school of thought saying that if the buyer is paying the buyer's agent commission, can it then be added to the closing costs on the settlement statement? And still be financed by the lender. And I think right now we're hearing, no, that's not allowed, but maybe there's a possibility that it would be. So right now we really don't know that that's something that the lenders are working on and thinking about. but that's all in how you write the offer. It is. And so if you end up in a situation where. You have an agreement on a number for the seller if it includes the compensation in it Then it's included and it can be financed and that's a very significant thing when you start talking about The time value of money When you start talking about cash out of pocket, it's a lot of money to pay on a very large home. That's an expensive home if it was built into the purchase price, well, you know, you're financing that and you can keep the cash in your pocket. You could reinvest it in the market. You could reinvest it into the house. There's a lot of things you can do with that cash. Very creative. And the cash value now. It's a lot more powerful now than it will be later because of inflation. So yes, it can be financed as long as it's included in the purchase price, I think is the simplest way to look at that. So it's an advantage for the seller to pay it. Well, so let's get to the last point. Why is it likely for the seller to continue paying the buyer's agent commission? Well, that's the market part that we've been talking about, you know, currently there's a large, we covered it in the right. I mean, it's larger than typical supply of existing housing in the market. In our area, there are about four months of inventory available for buyers. Only one in four houses will sell each month. We would call this buyer's market because buyers have a great selection of properties to choose. Interest rates are higher than in the past and homeowners insurance in Florida is also very expensive. Thus, buyers are being very careful when spending on houses. When the market swings the power towards the buyer, the seller will be incentivized to pay the buyer's agent rather than force the buyer to pay their own agent. Additionally, if the seller is willing to accept a price that includes a compensation for the buyer's agents, then the buyer is able to finance the buyer's agent's commission. In an effort to avoid over expanding, Sellers are willing to make palatable terms available to the buyers in a buyer's market. When sellers had the power, low inventory, aggressively high pricing, they named the terms about inspections, post closing occupancies, waived appraisal contingencies, etc. Sellers may not be as open to footing the bill for the buyer's agent if the market turns stronger for the seller. Well that'll be for Another episode, it will be for a different year. It's not going to be anytime soon. Yes. Likely. Right. So it's funny to think about what was going on post COVID and how much power the sellers had. Aggressive, offers and, escalation clauses and waived contingencies It was a crazy mark that we had to fight our way through. And, this is a new craziness, right? It's a new subject, new craziness to fight our way through, but we're getting there. I think things are evolving quickly and are going to continue changing for a little bit longer, but we'll try to keep you posted on what we're hearing. Get you up to speed. So you have a good understanding of what you're, in for when you go to purchase a house and sell a house. I mean, two weeks ago. The sellers weren't telling their agent to tell the buyer's agent, Hey, I'll pay you. And here's how much, and now that's happening. I mean, it's very open. People are telling them what they will pay. I think it's fine. we're just here to, See what happens. Hopefully we can keep you up to speed. So you have a good understanding and we'll certainly have another update on this in the coming weeks. Yep. It's always changing. Yes. Well, I'm Julie Jones and I'm David van with the real property, St. Pete podcast. See you soon.