What the DOJ/NAR Settlement Means to Buyers
(and Why You Should Always Work With a Buyer Representative)
On August 5th, 2024, a legal settlement between the Department of Justice, Regional MLSs, and the National Association of Realtors® resulted in the creation of a more formal (and legally binding) buyer-agent relationship, and has changed the way buyer-agents are compensated
If you’re a buyer:
REALTORS® working with potential buyers can NO LONGER show you properties without a signed buyer-agency contract. A Buyer-Broker Agreement will specify what the agent will do for you, how long that contract will remain in effect, and how much that agent will be paid. Every REALTOR® is required by law to have you sign this document before they can begin showing you properties or act as your agent in any capacity including providing guidence.
How long will a buyer-agency contract last? Ninety days seems to be the current norm, but if you’re just starting out with an agent and want to get a feel for how they work with you, you can start by “dating” an agent with a shorter-term agreement. Whatever the agreed timeframe, this is an exclusive agreement with the agent for that period, and if you purchase a property you’ve seen in that timeframe - even if the agreement has now expired - you must complete the purchase through them and abide by the agreement’s terms.
You may opt out of the agreement by written notice at any time and the agent can add a clause to that effect at your request, but you must still complete the purchase of any property that you have seen during the active term of the agreement with the agent.
Will buyers always be required to pay the buyer broker compensation?
No. Sellers can choose to offer compensation or not, and how much, but their agents may not advertise the amount in MLS due to the DOJ settlement. Buyer-agent commissions will be specified in the offer you and your agent make, and sellers will select the offer that provides the best terms for their needs.
For the foreseeable future, sellers will likely continue paying buyer agent commissions, but with more negotiation and flexibility. In slower markets, sellers may offer commissions to attract offers, while in hot markets, they might negotiate or reduce commissions. Some sellers could include the commission in the home price, but this risks appraisal issues and new transparency rules. Alternatively, the seller may offer concessions that offset part of the buyer’s agency fee. First-time buyers may struggle to pay agent fees at closing, though future changes could allow fees to be financed. As the market adapts, commission rates may decrease, and new norms for paying commissions will emerge.
Will the buyer-agent be able to collect more than the fee outlined in the contract if the seller is offering a buyer-fee?
No. If the buyer has agreed to 2.5% in their agency agreement, and the seller has agreed to pay 1% to a buyer agent in the offer, the buyer agent cannot collect more than 2.5%, so the buyer would pay 1.5%.
Who has typically paid the buyer-side commission in the past? It’s a misconception that the seller has been paying the fee. In reality, the buyer has always been covering the buyer-agent commission; it's been baked into the price of the home. At closing, the buyer’s funds were divided among the seller, banks, and brokers. The commission was embedded in the home’s price, allowing the buyer to finance it, and was typically split between the listing and buyer agents.
What happens if I deal directly with the seller’s listing agent? It is important to remember that, as a buyer, if you work with the listing agent to complete a purchase, you lose the right to the fiduciary duties such as undivided loyalty, confidentiality, full disclosure, and reasonable care, and above all you lose the expectation of expert guidance that would have been the duties of your own buyer representative. It’s always best to have a buyer agent, and always identify them at open houses that you attend on your own. REALTORS® must always ask if you’re working with an agent before offering their services.
Remember, the listing agent is working in the seller’s best interests; you should always have your own representation. If you’re a buyer, now more than ever, you want to work with someone who has the skills to navigate the process, is prepared for these changes, and has the fiduciary duty and ability to guide you through property identification, negotiations, and referrals to lenders, title companies, inspectors, and contractors. You need someone who can solve transactional issues to your advantage. Even the smoothest transactions can have potential minefields.
In closing
While this might seem daunting and perhaps a disincentive to entering the market, I assure you that I can help you navigate the process and get you into your new home under terms that are in your favor. I’ll continue to keep you updated on any effective changes to how business gets done,
If you’d like more information about buying a home, reach out!