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The Truth About the NAR Settlement

April 07, 202413 min read

“The biggest question from most of our sellers is if they should should consider adding concessions for buyers to cover the costs and attract more bids on their home!” - Stacy Esser

The Shocking Truth About the NAR Settlement

Author: Stacy Esser, with Contributions from Chris Sapienza from a broker's perspective

Over the past few weeks, we've had the opportunity to discuss the recently proposed NAR settlement with our SEG team, friends, neighbors, clients, and other realtors. The tentative agreement is designed to clarify standards of practice in the real estate industry for both buyers and sellers.

As your trusted real estate advisor, we're here to help you navigate what this means for your real estate journey and ensure you're well-informed every step of the way. And at the end, we will answer some additional questions my team has been fielding most frequently from our clients and friends.

Note: The courts are expected to rule on the settlement in July, however changes are not expected to go into effect until December.

ADDITIONAL RESOURCES:

OVERVIEW VIDEO OF THE NAR SETTLEMENT >>

COMPREHENSIVE NAR FAQS >>


The Biggest Change: Decoupling Commissions and Buyer’s Agency Agreements

There has been so much media coverage nationally, including comments from the President. So let’s get right into it. The biggest and most notable change, with the greatest impact is the decoupling of the two sides of commissions—the listing/seller side and the buy side. This change has the greatest impact on buyers as they need to establish a separate agency agreement before viewing any homes with a realtor.


Truth: Handling of Listing contracts varied from state to state.


Therefore before going further, let’s review the current process in New Jersey and discuss what the potential changes could mean for buyers and sellers.


SELLERS: The Current Process and NAR Settlement Impact

Today, the New Jersey MLS mandates that sellers review and sign specific listing forms to comply with its regulations. These forms contain multiple sections where the overall commission is negotiated, including the sum of both the listing and buyer's side commissions. In the listing agreement, there are two sections where the seller can negotiate the commission offered to the buyer's broker who represents the buyer, and the seller's broker who represents the seller.

Until now, a buyer's compensation was negotiated between the seller and the listing agent and that commission was calculated into the seller's proceeds which as we know are paid by the buyer. This offer of compensation was then marketed on MLS. The term marketed is key here.

What changes should Sellers expect with the NAR Settlement?

The settlement proposes that the MLS and all other retail sites will no longer advertise a seller's offering of cooperating commission to the buyer's broker. An important distinction here is this does not prohibit the seller from offering cooperating compensation. However, the onus will fall on the Seller's agent to determine where and when to communicate this information outside of the MLS. What does this mean for sellers?


Truth: A set buyer's commission may not be offered via the MLS, but there are workarounds that Sellers may want to consider to secure a higher sales price.


The Department of Justice believes that, to prevent price fixing and encourage negotiations between all parties, a set buyer's commission amount may NOT be offered via the MLS. However, seller concessions can be offered through the MLS, which can be used towards buyer agent commissions, and we expect this to happen.

With that said, you may be wondering, WHY should you even consider offering a seller concession? 👊

We anticipate that sellers will want to offer concessions to the buyers to give their agents incentive to show their home, versus the competition and since buyers are not used to paying commissions, this may be a wise move for a seller. A seller concession is when you, as the seller of your home, agree to pay some of the buyer's closing costs to help finalize the sale.

We firmly believe that it is in their best interest to do so, and here's why:

“As a top listing agent with over a decade of experience, I've observed that the more ready, willing, and able buyers we attract to the home, the better the chances are for multiple bids and a higher sales price, regardless of whether the market favors sellers, buyers, or is neutral.  The biggest question from most of our sellers is whether they should consider adding concessions for potential buyers to cover the costs. Our answer is simple: Not offering any compensation to the buyer's agent could potentially deter a significant number of buyers from viewing your home, thereby limiting your opportunities to generate the best sales price on your home” – Stacy Esser

When sellers set their listing price, they aim to achieve the best possible sale price and terms for their home. The commission is typically factored into the asking price. By offering compensation to the buyer's agent, sellers can ensure that their property is shown to a wider pool of potential buyers, increasing the likelihood of a successful sale at an optimal price.

While this is not our belief, some experts do believe that sellers who do not offer buyer's compensation will end up passing the savings to buyers in another way, bringing down the cost of the home and, by extension, helping the affordability challenges many buyers are currently facing because of rising home prices and higher interest rates.

The onus will fall on the listing agent to be creative and share any offer of compensation on their individual websites or any other platform outside of the MLS and the aggregate sites.


Truth: Supply and demand are the main factors determining the “market value” of a home. Not the commissions a buyer or seller has negotiated.


As an added side note, the headlines suggest that home prices will get reduced to what you are saving by not paying the buy-side commission. However, supply and demand are the main factors determining the “market value” of a home. Not the commissions a buyer or seller has negotiated.

BUYERS: The Current Process and NAR Settlement Impact

Most buyer agents in New Jersey (except for our team) are NOT using buyer agency agreements. And up until now, there was no conversation around fees because the buyer knew the fee was calculated into the proceeds and pre-determined by the seller. The commission was always coming from the proceeds of the sale and wrapped into the financing for the buyer. The settlement proposes that Buyers must have their own, separate buyers agency agreement.

What changes should Buyers expect with the NAR Settlement?

This is a very different landscape. These agreements will establish a negotiated fee/compensation structure and scope of work prior to a buyer’s broker showing them any home(s). And the word prior is a big deal and one that is not being given the proper amount of attention. The Department of Justice believes this will create more conversation and transparency because the buyer would be able to decide what scope of services they wish to receive and must agree to compensation for those services with their agent prior to viewing any home. This same document will explain to the buyer that if the seller is not willing to cover the buyer agent fees, the buyer is responsible for any difference between what's negotiated by the seller and what's expected per the buyer agency agreement.


Truth: The Buyer and their agent will need to establish a negotiated fee/compensation structure and scope of work prior to a buyer’s broker showing them any home(s).


Buyers we work with typically feel more comfortable with professional representation (more on that later). For buyers, the market has gone from hard to harder and harder, especially for first-time home buyers. Even our buyers who say “I'm gonna try it on my own ''... return and ask for help because they say the market is impossible to succeed in without professional help. So let's get into the real question on most buyer's mind.

DO YOU NEED A BUYER'S AGENT?

What this means is that a buyer hoping to save this commission may perhaps attempt to have no representation. However, this does not guarantee a lower commission. Let me explain why…

1. Why not just go to the listing agent?

A skilled Buyer's agent is invaluable and goes beyond searching for your home and making showing appointments. They have market expertise representing buyers and separate specific duties of care, disclosure, obedience, accounting, and loyalty (confidentiality) from the Seller’s agent. Most of all they limit the amount of risk for a buyer. Buying a home is a big decision - most often than not one of the the largest purchases you will make. And the real question for buyers is - What is your risk tolerance. As in, are you willing to lose a deal because your offer isn't as strong as a buyer who has hired a skilled professional to negotiate the deal? Are you willing to purchase a home that could have long term liabilities that you not aware of?

As a buyer, having your own representation apart from the seller's agent is highly advisable. A buyer's agent can assist in negotiating price and terms, addressing inspection issues, handling appraisal negotiations, and managing financing issues, all of which can save a buyer significant costs, effort, and time. Additionally, a buyer's agent can help avoid unforeseen pitfalls and expenses during and after the purchase. For buyers going directly to the listing agent, The NAR settlement doesn’t mean you will pay a lower or no commission. The seller’s agent will also negotiate their commission with the buyer as well.

2. Will the buyers save money?

There are varying thoughts. Some believe the buyer will not see any savings because of the reduced inventory and high competition for homes, especially in the opening price points where the lack of supply is most severe. Because there are more buyers, the seller won't have to take less, regardless of whether they offer a cooperating commission.

Others believe buyers may be able to negotiate a lower fee structure with their representative, and the buyer will save money.

Critics say that while these new changes sound plausible in theory, the projected outcome is simply not realistic in a market where there are too many buyers for too few homes. Supply and demand are the main factors determining the “market value” of a home.

2. Are there workarounds for Buyers?

One promising concept that’s emerging is the idea of “buyer credits” offered by sellers. These credits would be listed with the property and could be allocated as the buyer wishes at closing. The buyer might use the funds for their own expenses, to pay their broker or a combination of both.

3. Does SEG provide any Buyer support or expertise if I go it alone?

If you decide to go it alone, it's a big decision, and we admire your initiative and courage. Selling or buying a home is a significant undertaking, and we wish you success. I understand navigating the real estate market can be challenging, so we'd love to offer you our support as your "secret agent," so to speak. Here is a link to a bunch of our resources that can guide you on your journey. Good Luck --> https://topnjrealtor.com/market

4. What does SEG provide to its Buyer?

Most first-time homebuyers have no idea what has happened or how it will affect their negotiating ability. That is only one reason why we strongly recommend professional representation.

Navigating these changes can seem daunting, but that's what we are here for. Whether you're considering selling your home or embarking on the journey to find a new one, our team is here to provide the guidance, expertise, and support you need.

In today's strong seller's market, the role of a buyer's agent has become more critical than ever. We are committed to supporting our buyers by delving into their needs and finding creative solutions, such as uncovering off-market properties. We actively market to sellers to gauge their interest in selling homes that aren't listed, and we implement best practices to position our buyers as the most appealing candidates, helping them stand out from the competition. As professional agents, we are dedicated to honing our skills and consulting with other top agents to navigate and succeed on behalf of our clients. It's no surprise that our clients express their gratitude. They frequently say, "I don't know how you manage this for so many people; it's so stressful, and you are so helpful. We couldn't do this without you." Our dedication and expertise set us apart and enabled us to make a significant difference for our buyers in this competitive market.

FOR OUR COMPREHENSIVE NAR FAQS CLICK HERE >>

NAR SETTLEMENT SUMMARY

In conclusion, the impending NAR settlement introduces significant shifts in how real estate transactions are approached, both for buyers and sellers. With changes such as the decoupling of commissions and the new transparency in buyer-agent agreements, navigating the real estate market requires more strategic planning and understanding than ever before. For sellers, the concept of offering concessions might be the key to attracting the best offers, while buyers must now consider the implications of separate agency agreements on their purchasing journey. These adjustments, though potentially daunting, offer an opportunity for greater clarity and negotiation power for all parties involved. As your trusted advisors, we're here to demystify these changes and guide you through making informed decisions, whether you're selling your home or searching for your dream property.

Our commitment to providing expert advice, innovative solutions, and dedicated support remains unwavering. In this evolving market landscape, leveraging professional representation not only enhances your negotiation capabilities but also ensures you navigate these changes with confidence and success. At SEG, we're more than just your agents; we're your partners in achieving your real estate goals, adapting to new challenges, and celebrating your successes along the way.

If you want to learn more, we urge you to schedule a Strategy session. Our strategy sessions are designed to help you create game plan to win in the northern New Jersey Market! 👊

An Overview of the NAR Settlement


Buying or Selling in Bergen County

Here is a quick checklist to get you started on your journey. Remember imperfect action beats inaction, get started today!

  • Your journey should always start with understanding the latest on the Northern New Jersey market! Check out last month's New Jersey Housing Market Update right here --> NORTHERN NEW JERSEY MARKET UPDATE

  • If you are homeowner or considering selling in the next 12 months, we have outlined four simple steps to seller success. Check it out here --> 4 STEPS TO SELLER SUCCESS IN NJ

  • Inventory is super super low right now! We have over 40 homes for sale that are not listed on the MLS, Zillow, Realtor, etc. They are office exclusives - homes that are listed privately. If you want access, just let us know here --> OFFICE EXCLUSIVES

  • For all our MOST POPULAR resources, click here.

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Stacy Esser

SEG RE COACHING| Top 1% in the NJMLS | Best in Bergen Mag | John Maxwell Coach | Stager | Lux Specialist | Real Trends America’s Best | Women to Watch

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Our 6 Step Buyers Process

Beginning your home search can be an overwhelming and daunting task. Because of that, our team makes sure that you, and all other potential buyers, understand each of the 8 steps that we take to make the process as easy and painless as possible. By the end of your search, with our support and guidance, you will live happily ever after in your new, dream home.

Financially Map Out Your Success

Our agents get to know you — Need to move for a job? Want a shorter commute? Getting married? Having a baby? Need to upgrade or downsize? At this stage in the process, we’ll send you notifications about the listings that you’re most likely to be excited about. Be sure to let us know if one (or more) jumps out at you so that we can skip to the next step and schedule a viewing. be there for you every step of the way.

Success for each person looks different. A growing family or new empty-nesters have different needs. Our goal is to map out your goals financially to get a good understanding of what you need in a home but also what makes the most sense for your specific situation - both from a time and money perspective.

Buyer Matching & Office Exclusives

We’ll introduce you to our mortgage partner, who can help you determine your buying price range with confidence. Be prepared to dig into paperwork during this part of the process such as pay stubs, W2’s, and tax returns. The lender will do a full review and then tell you what you will be able to borrow in order to purchase a home. This is a vital step in the home buying process!

During this process, we will be sending you some listings to evaluate and provide us with feedback. This helps us to understand, update and revise your criteria and preferences. Our agents are always super involved in the community so they can provide you with tons of information about the areas you are interested in. We will also use this information to setup notifications of listings to you and evaluate any office exclusives (homes that are not yet listed in the MLS) so you are the first to see the property.

Let the Showings Begin

Here’s where the buying process gets really fun! We’ll attend open houses together and schedule viewings of the homes that you’ve loved from our listing alerts. Many of our clients prefer us to consolidate to one day of searching or have specific times that work for them. We handle all the coordination so you just have to show up! We’ll talk about how the budget will work and make sure that we find you the perfect home.

Strategic Negotiations

When you’re ready to make an offer, your agent will present a written offer to the seller. We also present your offer using video to help make a bigger impact and showcase our commitment to the sale of the home. And while everyone loves getting their offer accepted right away, the seller could come back to us with a counteroffer, or reject your initial offer all together. We’re happy to walk you through each of these possibilities and exactly how to handle them. Once the offer is accepted, it’s time to get your financing in order and move forward to the next step!

Prep for Close

The sellers accepted your offer, and the home is going through appraisal and inspection. The appraisal guarantees that the price of the property matches the condition of the property while the inspection makes sure that everything in the home is functioning properly and there are no major issues inside. These are the last steps before the shiny keys to your home are placed in your hand... for good!

Segue to Your Next Chapter

Get excited because it’s time to close on your home! This process includes going through all of the final paperwork and signing your name (a lot!). Don't forget to bring all of the paperwork you’ve collected along the way and your down payment.

But we know it doesn't stop here. You likely have a lot to coordinate, movers, painters, handymen etc. We will help you to SEGue into your next chapter seamlessly. Even make some introductions to some neighbors! You can count on us!

Ready to find your dream home?

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Top 1% of Realty Teams in Bergen County

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Stacy Esser Consulting LLC