Rundown On The Commission Settlement With NAR

The commission settlement with NAR has been all the talk this week. Like most things in life this is a very complicated issue. Most of the news articles I’ve seen have sensationalized the issue with clickbait. Don’t get me wrong, this is going to change the industry but not exactly in the ways being portrayed in the media. Since I service the Seattle area, I’m going to explain what’s going on here and how I think this is going to affect real estate in our area.  

What Is NAR?

NAR stands for the National Association of Realtors. They’re the largest professional trade group in the United States with over 1.5 million members. NAR has over 1200 local and territory associations in the country. Many of these own and operate the local MLS (Multiple listing Service) that’s used to list properties. In the Seattle area, the local chapter of NAR is called SKAR or Seattle King County Realtors. Unless a brokerage requires it, being a member of NAR is voluntary in Seattle. If you’re a member of NAR in this area the only meaningful affiliation is using the trademark, REALTOR vs. real estate agent or broker.  

What Multiple Listing Service (MLS) Does Seattle Belong To?

In the vast majority of Washington State including Seattle, our MLS is NOT owned or operated by NAR or SKAR. Our MLS is independently owned and operated by the NWMLS (Northwest Multiple Listing Service). The NWMLS is NOT a part of the litigation or settlement that has been reported in the media. In fact, the settlement that NAR has negotiated mirrors many of the practices the NWMLS has had in place for several years. We are outside of the bubble of this issue other than being looped in by the nature of being real estate agents. .

Why Is There A Commission Settlement With NAR?

I should first note that NAR admits no wrongdoing in the settlement. NAR is in litigation because of accusations they conspired to require home sellers to pay the buyer broker’s fee. They’ve also been accused of steering buyers to properties with higher fees. This among other things forced NAR into a commission settlement. This is something that NWMLS has NOT been accused of in litigation. The practices of the NWMLS have been transparent as to how real estate fees are negotiated and distributed. Steering buyers to homes with higher buyer agent fees has long been against the rules in our MLS.  

How Are Real Estate Fees Negotiated In The Seattle Area/NWMLS?

A seller hires a listing agent to list their home. The seller and the listing agent agree to a fee for the agent’s work to market and sell the home. The seller can decide to offer a fee to the buyer’s agent if they bring a buyer that closes on the property. If the seller does not offer a fee to the buyers agent, the buyer has to pay their agent directly. In this case, the buyer agent’s fee is determined by the terms of the pre-arranged fee agreement between the buyer and their agent.* 

Currently, it’s arguably in the best interest of the seller to pay the buyer’s broker fee. The benefit of offering a fee to the buyer’s agent is that it can attract a larger pool of qualified buyers. Reason being, those buyers will not have to pay their broker directly when they place an offer on the property. They will in effect have more money to put toward the purchase of the property. The larger the pool of qualified buyers, the better chance of selling the home at a higher price. 

The biggest change that will affect real estate is the buyer will pay their agent directly instead being paid out of the sellers proceeds. The benefit is the buyer will be able to negotiate the fee they pay with their agent directly. The seller saves money by not paying the buyer broker fee. The disadvantage is the buyer will have to use their funds on hand to pay their agent.

* In Washington a law took effect in January of this year requiring a compensation agreement be in place before buyers work with a real estate agent. However, the NWMLS made changes to the disclosure of fees in 2019 within our purchase and sale agreement. This was to offer more concise transparency as to who was being compensated and by whom.

How Will Buyers Paying Their Agent Directly Affect The Market?

The perception is sellers control the market, I believe it’s buyers. Collectively, buyers decide how much they are willing to pay for any given property. Buyers typically use all of their resources to come up with downpayment and closing costs. The result of the buyer paying the buyer’s agent directly may limit the price they can pay for the property or prevent them from buying at all. The less offers, the higher the probability the property will sell at a lower price.

The ability for the buyer to negotiate the fee directly instead of the seller paying may save buyers upfront. However, if they are financing the fee, the interest over the life of the loan may negate any upfront savings. As you can see, it’ super complicated once you peel the layers back. There are pro’s and cons to both systems.  

Buyers agents have to show their value for the fee they are being paid. Already, I have heard some agents say they would rather just work on the listing side. The concern is some buyers agents will undercut and work for ridiculously low fees. I say, you get what you pay for. If an agent is charging pennies on the dollar for work, they’re probably working like someone getting paid pennies on the dollar. Bottom line, we live in capitalist society. Work efficiently, do a good job, and work hard for your clients and they will want to pay you what you are worth.  

Potential Undesired Outcome Of Buyers Paying The Fee Directly.

Impact due to the commission settlement with NAR on lower income buyers is potentially devastating. Typically these buyers are barely scraping together the 3-5% required for their downpayment and closing costs. Currently, it would be nearly impossible for these buyers to buy a home without the seller paying the buyers agent fee.   

Why Shouldn’t Buyers Pay Their Agent Directly? That Only Seems Fair. 

It probably is fair but fair is not always better, only time will tell. I think buyers will start to pay their agents directly, but some things are going to have to change for it to work. Lending regulations need to be adjusted to allow buyers the ability to finance the fees to pay their agent. One negative impact is the fees buyers finance, may lower their purchasing power. The lower the buyer’s purchasing power, the less homes may sell for. Sellers may wind up with a lower selling price until the market adjusts to any changes in the status quo. But, the good news is the market will adjust with time. 

What Does The Commission Settlement With NAR Mean For The Future of Real Estate?

We are for sure going to see changes due to the commission settlement with NAR. I think the biggest impact will be on buyers and buyer agents. I believe we’re eventually going to move to a system where buyer agents are paid directly by the buyer. It’s going to take some time to move to this system because of the model currently in place. I’m indifferent to which system we use as I can see the drawbacks and benefits of both fee structures.

I hope what comes out of the commission settlement with NAR is that buyers and sellers across the country understand who is getting paid and how. Sellers, buyers, and agents should all walk away feeling good about the experience. Overall, I’m happy to see the changes in transparency taking place on a national level. I’m glad that our practices here have been a model for the future. It’s disappointing our industry has a black eye because of business practices made by NAR but it’s nice to see there is some accountability for those actions. Real estate is always evolving and we will get through this! 

Disclosure

Until 2023 Coldwell Banker required their agents to be members of NAR. Being a member of NAR allowed use of the REALTOR trademark and access training and certifications. NAR has zero control over how our MLS is operated or how we conduct business. It’s unclear exactly when, but sometime between July 2024 and January 2025 the end of the requirement that Coldwell Banker Bain agents join NAR will take effect. 

I am very happy about this change as NAR is operated by people that don’t align with my core beliefs. They lobby for practices I don’t agree with regarding equity in housing. They also have a poor record in regards to their treatment of women. Hence why you have never heard me refer to myself as a REALTOR. I have strong opinions about NAR that I’ll discuss in person with anyone who wants to chat. Feel free to reach out with questions or thoughts.