In a recent pivotal change for the real estate industry, the National Association of Realtors (NAR) has revised its guidelines regarding how sellers can negotiate compensation and concessions in real estate transactions and these changes only affect members of NAR and their clients. This change is a result of post-settlement negotiations following significant legal challenges. Now, more than ever, sellers are empowered to dictate the terms of compensation and concessions offered to buyers’ agents, giving them greater control and flexibility.
In this blog post, we will delve into the key aspects of these changes and how they impact sellers, buyers, and real estate agents alike.
1. Sellers Continue To Have the Power to Set Compensation Terms
Under the new NAR guidelines, sellers continue to not be bound by traditional structures that dictate the compensation offered to buyer’s agents; the settlement just makes this more clear. Historically, it was common practice for sellers to automatically offer a certain percentage of the sale price as commission to the buyer’s agent yet the power was always in the hands on the seller. However, with the new rules in place, sellers now have more assurance and more clarification that they have the authority to set these terms based on their preferences and the dynamics of the market.
This shift means sellers can now negotiate the commission structure more freely, whether that involves offering a flat fee, a lower percentage, or even varying the commission based on the level of service provided by the buyer’s agent. This flexibility can lead to cost savings for sellers and a more tailored approach to managing the sale of their property.
Why This Matters: Listing brokerages should not be limiting the ways that sellers wish to present their properties when it comes to compensation or sellers concessions.
2. Seller Concessions: Tailoring Your Offer to the Market
Seller concessions are incentives that a seller offers to the buyer, often to help close the deal. These can include covering closing costs, paying for home warranties, offering repair credits, or even buyer agent compensation. With the changes from the NAR settlement, sellers now have more flexibility in determining the extent and nature of these concessions.
Another significant change is how seller concessions are handled. Previously, seller concessions—such as covering closing costs, providing home warranties, or making specific repairs—were often expected or included as part of the negotiation process. The revised guidelines make it clear that seller concessions are not an automatic expectation. Sellers have the right to decide whether to offer concessions and under what circumstances.
This empowers sellers to be more strategic in their negotiations. For instance, in a seller’s market where demand is high, a seller may choose to offer minimal or no concessions. Conversely, in a buyer’s market, where competition is tougher, offering concessions might be used as a tool to attract offers. The decision lies firmly in the seller’s hands, allowing for a more customized approach to each transaction.
Why This Matters: The power to offer concessions allows sellers to make their property more attractive, especially in a competitive market. However, it’s important for sellers to recognize that these concessions come directly from their bottom line. Understanding the local market conditions is crucial—offering too much can erode profits, while offering too little might cause the property to linger on the market.
3. Strategizing Compensation to Align with Market Conditions
With the new rules, sellers need to be more strategic about the compensation they offer to buyer agents. This is not just about the dollar amount; it’s about understanding the current market dynamics and how compensation can influence buyer behavior.
Why This Matters: In a buyer’s market, where there are more homes for sale than there are buyers, offering a higher commission to buyer agents could make a significant difference in how quickly your home sells. Conversely, in a seller’s market, where demand outstrips supply, you might not need to offer as high a commission to achieve the same result. The key is to understand the balance of power in your local market and adjust accordingly.
4. Negotiation Strategies May Evolve
As sellers gain more control over compensation and concessions, the negotiation process between sellers, buyers, and their respective agents may see some changes. Buyers’ agents may need to adjust their strategies, possibly by advocating more strongly for their clients or finding creative ways to ensure their commission is protected.
For sellers, this means working closely with their listing agent to develop a strategy that aligns with their goals. Whether the focus is on maximizing profit, selling quickly, or finding the right buyer, the ability to negotiate terms of compensation and concessions offers sellers a powerful tool to achieve their desired outcome.
As a seller, it’s important to remember that everything in a real estate transaction is negotiable, including seller concessions. While concessions can be a useful tool to close a deal, they should be used strategically. At the same time, sellers will continue to be challenged with the same issues as they always have — attracting a ready, willing, and abled buyer.
Why This Matters: Knowing when and how to offer concessions without undermining your financial goals is crucial. For example, if a buyer requests that you cover all closing costs, consider negotiating a higher sale price to offset this expense. Alternatively, you might agree to certain repairs or offer a credit instead of lowering your asking price. The goal is to keep the negotiation balanced and ensure that the concessions you offer don’t result in a net loss.
5. Leveraging Your Agent’s Expertise
In this new era of real estate transactions, the role of the seller’s agent has evolved. While sellers now have more control over compensation and concessions, the expertise of a seasoned real estate agent is invaluable in navigating these decisions. Sellers also have to be mindful of understanding their options and not being loopholed into a certain strategy that a particular firm has chosen to “be the best” option.
In Texas, as far as the listing agreement goes, we have several options for sellers to consider. In 5A1 a seller can offer a buyer agent compensation similar to they always have in the past. In this section it allows for the seller’s agent to handle a unrepresented buyer and be compensated as well as for intermediary (agent brings a buyer represented by a buyer’s agent of the same brokerage).
In 5B2, the seller can offer to just compensate the listing agent and choose to offer seller concessions or no seller concessions to the buyer for the buyer agent compensation or anything else they would like to apply those fund toward.
Both options have challenges and both options have benefits. For decades sellers have chosen to offer bonuses to buyers agents as well as increased compensation figures to attract more eyes to their properties. These issues will not go away as the seller will have the continued issue of attracting buyers. The important thing to remember is to work with a firm that explains fully your options in 5A1 and 5B2 and allows you as the seller to choose the best route for you and your property. You deserve no less than to be offered all of the rights afforded to you under the listing agreement and choose the route you think is best. At Uncommon Realty, we will be doing just that. We will work to make sure you as the seller have the most available options and information to make your choices. We have vowed to not limit your choices by what we deem is the best option because that is not our right. Our job is to educate and represent you and that is what we are going to do.
Why This Matters: A good real estate agent will provide critical market insights, helping you set the right compensation level and determine when and how to offer concessions. They can also guide you through the negotiation process, ensuring that your interests are protected while maximizing the attractiveness of your property to potential buyers. Also, a good real estate agent should allow the seller to make the best choices regarding seller concessions and/or buyer agent compensation.
6. Implications for Buyers and Buyers’ Agents
The new guidelines also have significant implications for buyers and their agents. Buyers may need to be more aware of the compensation structure as it could affect the overall cost of their purchase. Additionally, buyers’ agents will need to be more proactive in discussing compensation and how it aligns with their client’s budget and expectations.
In some cases, buyers may be asked to contribute to their agent’s commission, especially if the seller offers a lower-than-expected rate. This could lead to more upfront conversations about the value that the buyer’s agent brings to the transaction and how their services impact the buyer’s purchasing decision.
I think the most frustrating issue with the settlement is that buyers are now being forced to sign a buyer represenation agreement before seeing a home. In some cases I am afraid that the buyer will not have been able to make the wisest choice or know their options clearly before they agree to be bound to such a contract. I am a firm believer that all parties (buyers and sellers) should have been issued with mandated diclosures explaining their rights should their agent somehow have failed to correctly instead of forcing them to sign a buyer agency contract. Hopefully buyers will learn to slow down, due their agent due dilligence and then look for a home with the right agent.
7. The Importance of Professional Guidance
Given the complexity of these changes, professional guidance from a knowledgeable real estate agent is more important than ever. Sellers should seek an agent who understands the new guidelines and can help them navigate the process effectively. An experienced agent can provide valuable insights into market conditions, suggest appropriate compensation and concession strategies, and ensure that all legal requirements are met.
Buyers, too, should ensure that their agent is well-versed in the new rules and capable of advocating for their best interests. The real estate landscape is evolving, and having a trusted professional by your side can make all the difference in securing a favorable deal.
Embracing the New Reality
The post-settlement changes to the NAR guidelines represent a significant shift in the real estate industry, placing more control in the hands of sellers. By understanding and leveraging these new rules, sellers can take charge of their real estate transactions in ways that were not possible before.
Whether you’re a seller looking to maximize your returns or a buyer navigating a new landscape, staying informed and working with a knowledgeable agent is crucial. The real estate market in Austin is dynamic, and these changes only add to the need for strategic thinking and expert guidance.
With these new powers, sellers in Austin can approach their transactions with confidence, knowing that they have the tools to shape the compensation and concession terms to best suit their needs but I hope they keep their egos in check because it takes two to tango – a buyer and a seller.
