New NAR Rules for Buyer Representation
Part 2 in a Series: What buyers and sellers need to know about industry changes
The first post in this series covered new options for sellers to pay buyer’s agents—or not. This post covers the changes for buyers and buyer’s agents.
American real estate has historically been structured on the belief that each side of a transaction (seller and buyer) has the right to their own agent. Of course there are exceptions, but most residential resales have had two agents, each representing the best interests of their respective clients.
When the new National Association of Realtors (NAR) rules go into effect on or before August 17, 2024, some fear the number of transactions having only one agent—the seller’s—will increase.
If you’re a buyer, here are the two major changes to understand:
1. Before a buyer’s agent can show you a listing, you must sign a Buyer’s Representation Agreement. This creates an exclusive relationship allowing the agent to represent you in your home search and purchase.
2. In the Buyer’s Representation Agreement, you agree to pay your agent’s fee in the event the seller will not. Each company will set their minimum fee which could be a percentage of the sale price, or a flat dollar amount.
(Disclaimer: As of the original date of this post, I’ve reviewed initial drafts of the new forms from the Hawaii Association of Realtors. Each state or local MLS across the country will be producing their own standard forms. This post will be revised as necessary after the final forms are released on August 12, 2024.)
Is the NAR pushing out buyer’s agents?
The original recent class actions against the NAR were brought on by disgruntled sellers. If you read the first post in this series, the new rules for sellers makes paying the buyer’s broker optional. At first glance, the new rules for buyers might seem anti-buyer—and anti-buyer’s agents—in order to placate and favor sellers.
On the contrary, I think the new buyer rules help perpetuate the existence and heighten the value of buyer’s agents. Buyer’s Representation Agreements cement buyers’ continued right to representation while ensuring buyer’s agents will be paid for their work. Remember, most agents are paid on commission and will continue to work without pay until they actually close a sale.
In the past, buyers weren’t necessarily required to commit or sign an agreement; they could work with multiple buyer’s agents as long as they didn’t sign an exclusive agreement with any of them. Most serious buyer’s agents would require a buyer to eventually sign a commitment; getting this commitment gave the agent confidence and motivation—which will continue to be the case. No one works harder than a buyer’s agent who has their client’s trust and commitment!
Buyers will have options, too!
With the new settlement rules, the NAR is also trying to placate the Department of Justice’s accusations of anti-trust practices. The DOJ wants to see more competition in the real estate industry to ultimately bring down costs for sellers and buyers.
For decades we’ve had competition between listing brokers and what they charge sellers; now there will also be competition between buyer’s brokers as they set their minimum fees. Buyer’s broker X may require 2.5% of the sale price as their fee to represent you; broker Y may only require 1.5%; broker Z might set a flat fee.
Buyers have always had the following three representation options (though until now, options #2 and #3 were rare):
1. Hire a buyer’s agent to expertly guide you and represent your best interests; OR
2. Represent yourself—the seller’s agent may assist you with paperwork, but their fiduciary allegiance is to their seller—you will be unrepresented; OR
3. Have the seller’s agent also represent you: dual agency.
Unless you regularly buy and sell real estate and are very comfortable with legal documents and evaluating a home, I recommend you do not attempt option #2 or #3. A future post in this series will explain the possible pitfalls and disadvantages of buyers not having their own agent.
Have you ever purchased a home without an agent? What were the pros and cons?
What if you’re afraid to commit to a particular agent?
Perhaps you don’t like the idea of committing to a particular buyer’s agent. Perhaps this agent was a referral from a friend, or you’ve read good online reviews, but the agent is still a stranger to you. As awkward as it is (it can be awkward for us agents too), agents must follow the new NAR rules and have you sign a Buyer’s Representation Agreement before we can work for you.
Rest assured: the Buyer’s Representation Agreement is not a terribly binding commitment. Each company or regional association will have their own form, but there should always be a beginning and end date for the relationship and a way for you to cancel. You could try working with an agent who will allow you to sign for a short period of time and give them a chance to earn your continued business.
It’s worth taking the time to interview 2-3 buyer’s agents. A future post will have suggestions for interview questions and what to look for when choosing a buyer’s agent—including buyers’ new ability to comparison shop for buyer’s broker fees.
What if you can’t afford to pay for a buyer’s agent?
The scariest part of the new Buyer’s Representation Agreement is that buyers must agree to pay their agent if the seller will not. By August 17, each real estate company will set their own minimum fee for their Buyer’s Representation Agreement form. Savvy buyers will shop around not only for a great buyer’s agent—but for one whose company’s minimum fee is advantageous.
The biggest takeaway I’d love for buyers to remember is that you will only need to pay your agent if the seller will not. There will be many—maybe a majority—of sellers who will still offer some kind of compensation to the buyer’s side. For sellers who don’t indicate any compensation up front, they are allowed to change their minds.
You can read the first post in this series to understand that the buyer’s compensation can be negotiated during the offer and counteroffer stage. Regardless what the seller stated they would pay (or not), your buyer’s agent can advocate for compensation or seller credits within your offer. Buyer’s side compensation will become another negotiation point along with the sale price and other terms.
So, buyers, please do not direct your agent to show you only listings where the seller is offering compensation! If you are working with an experienced buyer’s agent, they will not only help you research what the seller is offering (because another new NAR rule is that commission information can no longer be listed in the MLS), they will help you craft your offer to include their compensation. The seller can review your offer as a whole package.
It pays to shop around for a buyer’s agent
How much your buyer’s broker sets for their minimum can play into your budget—and also your offer strategy. Consider three examples where the seller is offering 2.5% commission to the buyer’s side, but each buyer’s broker fee is different:
1. The seller is offering 2.5% to the buyer’s side. Your buyer’s broker minimum fee is 3.0%. You would need to pay 0.5% out of your pocket to cover your buyer’s broker fee.
2. The seller is offering 2.5% to the buyer’s side. Your buyer’s broker minimum fee is 2.5%. Your buyer’s broker fee is fully covered by the seller.
3. The seller is offering 2.5% to the buyer’s side. Your buyer’s broker minimum fee is 1.5%. Working with this buyer’s broker allows you to sweeten your offer and show the seller you will save them 1.0% in buyer broker commissions.
To fully understand example #3, there is another new NAR rule that is a game changer: your buyer’s broker may not collect more than what’s agreed upon in the Buyer’s Representation Agreement. So a company offering a lower minimum fee can give their buyers an advantage. As you interview buyer’s agents, also be sure to ask what services are included with their fee.
More posts in this NAR series coming soon
Don’t miss any future posts—subscribe and receive new posts by email—it’s free and you can unsubscribe anytime. Upcoming topics will include:
What to ask and watch for when interviewing a buyer’s agent/broker
Understanding dual agency and unrepresented buyers—and the possible disadvantages for buyers
Possible disadvantages for sellers who don’t pay the buyer’s side
A moral conundrum for sellers
Do you have any topics or questions you’d like to see covered in another post?
Until next time, Aloha and God bless—Ali