Background
A recent federal court ruling challenged some of the National Association of Realtors’ (NAR) practices. NAR reached a settlement that included significant changes to real estate transactions.
Traditionally, listing agents offer a portion of the total commission charged to a seller as compensation to buyer agents as part of the marketing strategy to sell a property. Offering buyer’s agent compensation is one of the most effective uses of marketing funds because it ensures targeted and efficient use of funds, as payment occurs only when the property is sold. Unlike other advertising methods that require upfront investment without guaranteed results, buyer’s agent compensation is performance-based-payment occurring only when the property is sold. This approach increases market exposure and aligns the seller’s investment with the desired outcome of a successful sale. This commission customarily would cover the cost of the buyer’s agent fee, and thereby reducing the amount a
buyer would need to bring to closing.
Key Changes in Business Practices and Their Impact
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Mandatory Exclusive Buyer Agency Agreement:
Under the new rules, buyers must sign a written Buyer Agency Agreement before viewing properties. This agreement specifies the agent’s compensation, which may or may not be covered by the seller. Requiring this documentation upfront ensures the buyer knows from the beginning of their representation what the cost will be for the buyer’s agent’s service. A written agreement is not needed for casual inquiries at open houses or initial discussions about services. These new rules are required by Iowa State Law (effective 7/1/24), the National Association of Realtors (effective 8/17/24), and Illinois State Law (effective 1/1/25)
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Prohibition of Commission Offers in the MLS:
Offering buyers and buyer agent compensation as part of the marketing strategy is still going to be one of the most effective ways to sell a property. However, the process around how that is being offered and how much the buyer’s agent will ultimately be paid is changing. For home sellers, this means your agent can still offer a portion of the commission to buyer’s agents, but it must be communicated separately and not via the Multiple Listing Service (MLS). The amount of compensation being offered by the listing brokerage will be determined at the time of listing and may cover all or a portion of the total amount due to a buyer’s agent. In the event the amount offered by the listing brokerage is not sufficient to cover the buyer’s agent’s commission per their Buyer Agency Agreement, the buyer may request the seller to cover the rest of the commission due.
Understanding the Impact
These new regulations are intended to increase clarity and consumer protection in real estate transactions. However, in the short term, they will likely cause some confusion. We hope to help our buyers better understand these new rules and laws so that our buyers and sellers can better navigate their real estate transactions with confidence.
Always feel free to reach out to your Ruhl&Ruhl agent for any questions or assistance. We are blessed to have the best agents in the industry who are on top of all of this.