On 17th August 2024, a series of significant changes implemented by the National Association of Realtors (NAR) came into effect in the USA
The changes are part of a proposed settlement of multiple ongoing lawsuits related to home purchases and the rental market. The overall result is an overhaul of broker compensation practices: the choices that renters, buyers and sellers have regarding the real estate services they receive will be preserved, but compensation value will no longer be legally mandated and will therefore become negotiable.
Why is the overhaul taking place?
Currently, an agent/broker representing a home seller has the option to split their commission with the agent representing the buyer, who they connect with via a system called the MLS (Multiple Listing System – a private database used by real estate professionals to share properties for sale or rent). This arrangement is termed Cooperative Compensation. The overhaul will prevent agents/brokers from operating the Cooperative Compensation approach, thus eliminating the existing incentive for buyers’ agents to steer their clients away from properties that don’t include a Cooperative Compensation offer.
How will buyers and renters be affected?
Property Tours: A written agreement between real estate broker and assignee will have to be in place before a property tour, even a virtual one, takes place.
Forms of Compensation: Compensation will still be available in multiple forms. These include:
- A fixed fee percentage based on the rental/sales price of the property and payable by the tenant/buyer.
- A flat fee for representation
- A concession by the landlord/seller
- A proportion of the listing broker’s compensation, if agreed prior to an offer being made.
Compensation Offers: As yet, it is unclear as to whether compensation offers will continue to be an option for renters and buyers. Both groups will, however, be able to pursue OFF MLS negotiations.
Concessions: Landlords/sellers will be able to offer renters/buyers a concession to be put towards compensation for the representation received.
Listing Broker: Renters/buyers will be able to request in writing that the listing broker pay compensation to the tenant’s/buyer’s broker.
How will sellers be affected?
- The 6% Commission Rule will no longer be standard. Currently, commission is split between the buyer’s agent and the seller’s agent, and is paid by the seller. Going forward, commission will be negotiable and the seller will not be solely responsible for paying it.
- Offers of compensation will no longer be an option on the MLS.
- Sellers will still be able to offer a buyer a concession on the MLS – specific fields will allow for this. This concession will help to cover the compensation for the buyer’s broker.
- The listing broker will have to obtain approval from the seller on any payment or offer of payment to a buyer.
- Compensation for selling the property will be negotiable; it will be negotiated between the listing broker and the seller.
What should clients be aware of?
When it comes to compensation, an assignee has five choices. They can:
- Try to secure a policy exception. Clients may choose to assist with the cost of compensation as an exception to their current policy, rather than rewriting the policy to include assistance with this new cost.
- Represent themselves, i.e. not enlist the services of a real estate broker – not recommended.
- Enter into a Dual Agency Agreement with the listing real estate broker for the property that they are interested in. With this option, no compensation is needed. However, Dual Agency is not legal in nine states and it is also not recommended.
- Pay the compensation out of their own pocket.
In most US markets (excluding NYC and the surrounding area), securing a managed property/apartment should not require the use of a broker, therefore a search for this type of accommodation can continue to be supported by a DSP.
To secure the rental of a condominium or single-family home, a broker/an agent/the MLS will likely be required.
Whether or not broker fees are present, as well as how high they are, will depend on both the market and the requirements of each assignee, therefore K2 recommends that fees are analysed on a case-by-case basis.
