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If you’re a real estate investor, the recent changes at the National Association of Realtors (NAR) might feel like a bunch of legal mumbo jumbo. But before you shrug it off and go back to binge-watching Selling Sunset for “research,” let’s break down what these changes could mean for you—and why you should care.
1. Commission Transparency: No More Smoke and Mirrors
Remember when trying to understand real estate commissions felt like deciphering ancient hieroglyphics? Well, those days are over. NAR is pushing for greater transparency, meaning you’ll finally see where all those dollars are going up front.
Impact on Investors: Imagine this: you walk into a negotiation armed with knowledge (and maybe a few spreadsheets) instead of just hoping your agent isn’t taking you for a ride. Lower transaction costs and better negotiation power are on the horizon—perfect for keeping your wallet a little fuller and your returns a little higher.
AND for experienced investors, you can opt to represent yourself in real estate transactions instead of using an agent, if that best suits your needs. Of course, this was always an option, but I think it will become more common now. Another option is to hire an agent as a Transaction Broker for a flat fee to write up your contracts while you negotiate and coordinate everything yourself.
2. Legal and Antitrust Challenges: The Plot Thickens
NAR is facing some legal drama that could rival your favorite courtroom TV show. These lawsuits are challenging traditional commission structures and resulting in significant changes for the industry.
Traditionally, sellers paid real estate commissions--in an average residential deal, realtors charged a 5-6% commission to the seller, which was split (usually 50/50) between the buying and selling agents. This is NO LONGER the default.
Now, BOTH buyers and sellers need to negotiate and agree upon their agent commissions UP FRONT, and buyers need to be prepared to pay all or some of their agent’s commission. Sellers will need to decide if they are willing to pay all or some of the buyer’s agent commission, and buyers need to be prepared to compensate their realtor.
Impact on Investors: Investors have increased negotiating power due to these changes, in my opinion. Since investors are typically repeat clients, now is a GREAT time to negotiate lower commission fees for repeat business.
3. More Paperwork (Especially for Buyers)
A new requirement resulting from the NAR settlement is that buyers MUST sign some sort of Buyers Agency Agreement with a realtor before touring any properties. Does this seem like it’s a little much? Perhaps….
Brokerages all over the US are handling this differently, but my brokerage has come up with an option that (I think) will put many people at ease. We have a Touring Agreement that buyers can sign, which allows a realtor to show them properties for $0. Then, if you like your realtor and want to start offering on properties, you can enter into a more formal Buyers Agency Agreement with an agreed-upon compensation for the agent upfront.
Impact on Investors: Everyone will have to do more paperwork under the new NAR regulations, but it should actually benefit everyone in the long run.
Buyers and sellers will negotiate and agree upon their agent’s compensation upfront BEFORE property negotiations begin, which should help everyone have a more accurate idea of what they are paying for.
Conclusion: Investors will BENEFIT from the NAR Changes
“With the ability for buyers and investors to now favorably negotiate with their broker on commission fees as a result of the NAR settlement, we are likely to see an increase in the volume of deals, which has been generally on a decline for the past few years,” said real estate attorney Anthony Panebianco.
We will all have to put up with more paperwork, but overall, investors should BENEFIT from the NAR changes in the following ways:
- Increased transparency
- Less money paid in agent commissions overall
- Increased value from your agent - only the good agents will survive because they will need to explain upfront what value they are providing (and then prove it)
- More freedom to represent yourself in a real estate transaction or pay a flat fee for a Transaction Broker to assist with paperwork