06/08/2024 | Press release | Distributed by Public on 06/08/2024 22:46
Washington, D.C. - On August 17, all Realtors must conform to new rules agreed on by the National Association of Realtors (NAR) in their settlement of class action litigation. Two rule changes are particularly important: First, sellers will no longer be required to compensate buyer agents. Second, buyers will be required to sign contracts that set the amount of compensation that buyers will owe their agents. These two new rules require changes in agent practices that may confuse consumers, in part because many agents will try to preserve seller compensation of buyer agents to maintain 5-6 percent overall commissions.
"The new rules provide both opportunities and risks for consumers," said Stephen Brobeck, a CFA senior fellow. "Knowledgeable home buyers and sellers will be able to take advantage of the opportunities and avoid the risks."
Here are CFA's three suggestions to home sellers and buyers about how to cope with the new residential real estate marketplace.
Suggestion One: Selecting a competent, honest agent is more important than ever, especially for buyers. For the first time, buyer agents will be required to obtain written approval before showing buyers any property, so the agents must understand often complex (and frequently unfair) contract forms and be willing to explain them. In selecting an agent, CFA suggests that both buyers and sellers consider the following three factors:
Suggestion Two: Read and evaluate buyer or seller contracts (often called "agreements"), especially blanks that are filled in. Many contracts are impossible to read and understand. Don't sign them. Feel free to seek advice from an attorney or other independent expert.
The following contract provisions are especially unfair:
Suggestion Three: Discuss and negotiate commissions and any other agent compensation, in dollar amounts. The basic reason that the industry has been sued by the U.S. Department of Justice and by private citizens is because for a century, Realtors have colluded to set rates which now typically are five or six percent. The class action settlement, for the first time, effectively allows buyers to negotiate their agent's compensation. Buyers should take the opportunity to do so, setting a goal in dollar terms of two percent (of home sale price) or less. And so should sellers, who have had the same opportunity but frequently have decided not to pursue it.
There is much evidence that some Realtors will try to discourage this negotiation by having listing agents press sellers to commit upfront to specific buyer agent compensation and by having buyer agents assure buyers that sellers will provide this compensation. We suggest, and some industry leaders now agree, that sellers should not agree upfront to provide any buyer agent compensation but should wait for buyer offers. And if buyers need help compensating their agents, they should make that request in offers on properties. (If buyers had the opportunity to include agent compensation in their mortgages, this would be much less of an issue.)
Recently, CFA issued detailed criteria for evaluating both seller and buyer contract forms.