July 23rd 2024.
Big changes are on the horizon for those looking to purchase a home with the help of a real estate agent. Starting on August 17, potential home buyers will need to have a written agreement in place with their agent before they can tour any properties. These changes stem from a settlement agreement reached after the federal class-action lawsuit known as Burnett v. National Association of Realtors et al.
The National Association of Realtors, or NAR, is a trade association with over 1.5 million members who work in the real estate industry. As part of their code of ethics, these professionals are expected to conduct themselves with integrity. However, buying a home can be a complicated process, which is why the majority of Americans (86%) choose to work with a real estate agent or broker to guide them through it.
Typically, when a homebuyer works with an agent, the agent receives a commission based on the final sale of the property. This commission is usually around 5-6% of the sale price and is clearly outlined on the settlement statement received by both parties during the closing process. However, the plaintiffs in the Burnett case argued that buyers were unknowingly paying a portion of this commission, leading to inflated home prices.
On October 31, 2023, a federal jury ruled in favor of the plaintiffs and ordered NAR and other large real estate brokers to pay $418 million in damages. As a result, changes were made to ensure transparency around commission payments. Now, potential buyers must have a written agreement with their agent that clearly outlines how commissions will be paid.
But what does this mean for buyers and sellers? According to Nate Johnson, a St. Louis Realtor with over 25 years of experience, this new requirement for a written agreement is a big step towards transparency and fairness. In the past, there was a mandate for sellers to have an agreement, but not for buyers. This meant that buyers were often unaware of the commission their agent was receiving, even though they were essentially paying for it through the purchase price of the home. Now, the buyer and their agent will determine the compensation together.
Johnson explains that in most cases, the agent will try to have the seller cover their commission. However, if the seller is not willing to do so, the buyer may be responsible for paying it. This can be negotiated and included in the written agreement as part of the sale contract.
It's important for buyers to only work with agents who provide written agreements, as those who do not are in violation of the new rules. Johnson stresses the importance of having this agreement in place before even viewing homes. He also wants to assure first-time homebuyers that these types of agreements have always existed and the changes simply mean that all agents are now required to have one.
There may be some buyers who choose to forego working with an agent due to concerns about paying for their commission. However, Johnson cautions against this, especially for first-time homebuyers. Without representation, buyers may be at a disadvantage as they rely solely on the agent representing the seller.
In the end, these changes aim to create a more transparent and fair transaction process for all parties involved. By having a written agreement in place, buyers can have a clear understanding of their agent's role and compensation, leading to a smoother and more informed home buying experience.
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