The NAR Settlement and Its Impact on the Silicon Valley Market
Even if you’re not a Realtor, I’m sure you’ve heard a little something about the National Association of REALTORS® (NAR) settlement which has significantly reshaped the landscape of real estate commissions. For years, it was standard practice for sellers to pay commissions to both the listing agent and the buyer’s agent. However, the NAR settlement challenged this traditional arrangement and changed it all!
So how did this all start?
Five years ago a group of home sellers in Missouri initiated a class-action lawsuit against NAR and several other defendants. The plaintiffs alleged that real estate commissions were too high, buyer’s firms were paid too much, and NAR’s REALTOR® Code of Ethics, MLS Handbook, and the practices of the corporate defendants contributed to inflated commission rates. The courts ruled that the way commissions were traditionally paid was unfair to buyers. As a result, the NAR was forced to make some changes.
Unfair to buyers? I’m still scratching my head over that one. Here in the Bay Area, it costs a LOT more to buy a house than in Missouri, and hard working folks are pulling every penny to afford their first home here ($1.4M was the median in San Jose, CA last month). And now they might have to pay for their Realtors commission as well, and you can’t have it wrapped up into your loan? It’ll be challenging, to say the least.
But on the plus side, one of the most notable outcomes of the settlement was the increased negotiating power it granted to buyers. It has also opened the door to increased transparency in the real estate industry. Agents are now required to disclose their fees and commissions upfront to buyers. This has helped to reduce confusion, and empower buyers to make informed decisions. Plus this shift has given buyers more control over the costs associated with their home purchase, and who they are hiring. If the buyer needs to pay for their own Realtor’s commission, they should be more selective on who they hire and what they’re paying for, which is the same process they would take when selling their home with a Realtor.
Navigating the San Jose Market
While the settlement has provided buyers with more options, it’s essential to remember that the Bay Area real estate market remains competitive. In this high-demand area, factors such as property type, location, and market conditions can still influence commission negotiations. Although the MLS no longer allows any mention of what a seller may or may not be willing to pay for a Buyer’s Agent commission, sellers need to also realize that the price of their home was previously based on that commission being included in the sales price. If home sellers get greedy and don’t want to pay any commission to the other side, and if the buyer can’t afford to pay for it either, that will have an impact on the ultimate sales price. Basically, you get what you pay for.
Here are my tips for Bay Area Homebuyers:
- Work with a Knowledgeable Agent: Interview and choose a local real estate agent to represent you. They can provide you with valuable insights on the house you’re interested in, the neighborhood, schools, and so much more. They’ll also negotiate on your behalf, and guide you through the whole process. Choose an agent who is familiar with the San Jose market and surrounding cities, and has a strong track record of representing buyers.
- Consider Your Budget: Carefully assess your financial situation and set realistic expectations for your home purchase. Understanding your budget will help you determine what you can afford and how much you’re willing to spend on commissions. If you need a loan, start that process with a trusted lender right away so you are prepared. A good Realtor can put you in touch with their great resources.
- Accept that there is no perfect home: Don’t hold off for perfection. In San Jose and the South Bay Area, home prices appreciate faster than the average person can save. If you’re looking for your first home, start small and grow as you make more money. Don’t wait for the market to go down. You don’t want to be one of the “woulda-coulda-shoulda” folks that are kicking themselves for not buying way back when. Even if you have to pay for your Realtors commission on top of it all, it’s the same as paying for any other service in the world. The good ones don’t work for free.
To summarize:
The NAR settlement has changed the rules of the game for real estate commissions. Buyers now need a written agreement with a Realtor before they can tour homes. Hire the right Realtor to represent you based on your needs. You’ll want to work with someone that can guide you through every step, help you understand the potential costs involved, and negotiate on your behalf.
So who do you hire? Me, of course! 😊 But seriously, ask friends and family for references, and look online for unsolicited reviews. (Be sure to check out all my 5 star reviews on Yelp, Zillow and Google!)
Have more questions? Let’s chat! Schedule a consultation with me today to discuss your real estate goals, and we can make a plan.
For more information on the NAR settlement, you can visit the following links:
- NAR Website: https://www.nar.realtor/
- NAR Settlement Details: https://www.nar.realtor/the-facts/nar-settlement-faqs