What the NAR settlement means for Wisconsin home buyers

A RESOURCE ON THE NEW GUIDELINES FOR BUYERS IN WISCONSIN

These are interesting times for the real estate industry.

On March 15, 2024, The National Association of REALTORS® (NAR) reached an agreement in court that would affect – among many things – how brokers discuss and structure their commission.

Following this settlement, there has been significant confusion regarding its impact on the home-buying process. Will buyers have to pay for their agent’s fees? Are home prices likely to go down?

If you’re a home buyer in Wisconsin, understanding the impact of this settlement is crucial to making informed decisions during your home purchase. We will break down the key components of the NAR settlement agreement, explain what it means for Wisconsin home buyers, and offer actionable advice on navigating the evolving real estate landscape. Read on to learn more.

WHAT EXACTLY IS THE NAR SETTLEMENT AGREEMENT?

On March 15, NAR reached a $418-million settlement in response to a class-action antitrust lawsuit, Burnett v. NAR. According to the lawsuit, NAR and major brokerages colluded to inflate real estate commissions, particularly those paid by home sellers to buyer’s agents.

For context, in a typical real estate transaction, the seller of a home pays their agent a fee, which is a percentage of the total sale price. The listing agent splits this fee with the buyer’s agent by offering a specified compensation on the MLS (Multiple Listing Service), a database that is typically not visible to buyers and sellers.

The lawsuit challenged NAR’s commission structures and MLS regulations, which critics said artificially raised seller costs. However, NAR maintains that commissions have always been negotiable, and it has never required a 5% to 6% fee. Similarly, Realtors are required to abide by NAR’s strict Code of Ethics, which clearly states that brokers have an obligation to put their client’s interests above their own.

Major changes from the NAR settlement agreement

As part of the settlement, NAR agreed to remove the requirement that MLS listings offer compensation to buyer’s agents. Additionally, buyers must now sign a written agreement with their agent prior to touring a home, in person or virtually. These changes officially went into effect on August 17, 2024.

Here’s a breakdown of these key changes and how they reshape real estate transactions in the foreseeable future.

• SELLERS ARE NO LONGER ALLOWED TO POST OFFERS OF COMPENSATION ON THE MLS.

BEFORE: In the past, sellers were able to offer a commission to buyer’s agents when listing a property on the MLS. This system often made commission costs less visible to buyers. However, many buyers also benefited from the seller covering their agent’s fees as they were already tied to the selling price.

AFTER: Under the new regulations, sellers may no longer include offers of compensation for buyer’s agents in their MLS listings.

This change aims to provide increased flexibility and transparency when it comes to payment. Buyers are now responsible for discussing payment structures with their agent – they may agree to pay a flat fee or a percentage of the final sale price.

• BUYERS ARE NOW REQUIRED TO SIGN A CONTRACT WITH THEIR AGENT PRIOR TO VIEWING A HOME.

BEFORE: Previously, many buyers could work with an agent informally and begin touring homes without signing a formal agreement. On top of that, agents were compensated through the seller’s commission, so buyers didn’t always need to think about how their agent would be paid upfront.

AFTER: Post-settlement, buyers will need to sign a document with their agent before viewing homes – either a pre-agency agreement or a formal representation agreement. The latter will outline the services provided by the agent, including compensation terms, to ensure that buyers understand how their agent is paid and what they are responsible for. This agreement must also clearly state an objective form of compensation (e.g., a percentage, a flat fee, or even an hourly rate) and specify definite terms.

While this change provides more transparency, it may also alter how buyers budget for a home purchase as they will need to factor in their agent’s fees from the get-go. Do note that you won’t need to sign an agreement right away if you’re just inquiring about an agent’s services or asking them a question at an open house, for example.

Key takeaways

• TRANSPARENCY IN COMMISSIONS – Commissions paid to both the seller’s and buyer’s agents will be clearly disclosed.
• BUYER’S ROLE IN COMMISSION NEGOTIATION – Buyers may have more influence over how much their agent gets paid.
• MARKET IMPACT – Agents should begin to offer more competitive pricing and services to gain their clients’ trust, resulting in better deals for home buyers.

WHAT THE NAR SETTLEMENT AGREEMENT MEANS FOR HOME BUYERS IN WISCONSIN

1. There’s increased transparency in commission structures.

The recent NAR settlement brings significant transparency to real estate deals by changing how commissions are structured and disclosed. Sellers are no longer required to offer buyer agent commissions via the MLS, meaning these costs must now be openly negotiated and discussed between the buyer and their agent.

2. Buyers have more opportunities for negotiation and potential cost savings.

One of the most exciting possibilities of the NAR settlement for Wisconsin home buyers is the potential for cost savings, which are now possible in two key areas:

• HOME PRICES – If sellers adjust their pricing to reflect the new commission structures, buyers may see a decrease in home prices, making homes more affordable overall.
• COMMISSION FEES – By negotiating with a seller and paying your own agent, you may reduce the purchase price, keeping more money in your pocket.

3. Agent’s fees may now be included in budget planning.

When before, a buyer didn’t know their agent’s fees until the end of the real estate transaction, the new commission structure allows the buyer to integrate this financial consideration early in the process. Now, instead of just focusing on your down payment, closing costs, and other home-buying expenses, you may also need to consider budgeting for your agent’s compensation.

This change becomes especially important if you’re working with a tight budget, as it adds one more cost to think about. This should translate to careful financial planning and open discussions with your agent to make sure you’re fully prepared to cover everything.

4. Informal showings will likely be eliminated.

Since agents will now need you to sign an agreement before showing homes, it may slow things down a bit, especially for buyers who are eager to start the process or working with a tight timeline. To avoid any delays, it’s a good idea to spend more time discussing terms and signing the necessary agreements with your agent at the start of your home search.

5. First-time buyers may encounter complications in financing their home.

This new landscape could make things more challenging for first-time home buyers. Those struggling to put together a down payment, for example, may become more burdened with the responsibility of paying for their agent’s fees. Worst case scenario, this may lead some buyers to forego the essential services of a real estate professional to cut costs.

The key for first-time buyers is to balance the need for professional guidance with their budget, making sure they’re not sacrificing critical support just to save money.

NAVIGATING THE HOME-BUYING PROCESS POST-SETTLEMENT

The home-buying process may be broken down into several elements: setting a budget, finding the right property, exploring financing options, and getting pre-approved. Next, you hire a real estate agent and start house hunting. Once you find a property you like, you’ll make an offer and secure your mortgage. After that, the home must be inspected and appraised, and you may need to negotiate with the seller.

Post-settlement, expect the process to shift. Here are a few tips to help you navigate these practice changes.

• Understand your agent’s fees. Before house hunting, discuss with us our commission structure and the services we provide.
• Be prepared to pay for your agent’s fees. While sellers may still cover some or all of the buyer’s agent’s commission, you should be prepared to take on some or all of this cost yourself. Factor this into your home-buying budget.

THE ROLE OF BUYER REPRESENTATION IN WISCONSIN

For Wisconsin home buyers, it’s important to consider the role of a buyer’s agent in light of these changes. A buyer’s agent acts as your advocate in the home-buying process, helping you find homes, negotiate prices, and navigate the legal aspects of the transaction.

While the NAR settlement may change how agents are compensated, it does not diminish the importance of having professional representation when purchasing a home.

The benefits of hiring a buyer’s agent

• EXPERT MARKET KNOWLEDGE. Your agent will have deep knowledge of homes for sale in Wisconsin and the local market, including current market conditions, home values, and points for negotiation.
• NEGOTIATION POWER. A skilled agent will help you negotiate, not only the price of the home but also the terms that may save you money in the long run, such as repair credits or seller concessions.
• GUIDANCE THROUGHOUT THE PROCESS. Real estate transactions are intrinsically complex, especially the paper-pushing aspect of it. A buyer’s agent ensures that you meet all deadlines and handle the required paperwork efficiently.
• OBJECTIVE ADVICE. Your agent provides unbiased insight, helping you evaluate the pros and cons of each property without the emotional involvement that may sometimes cloud judgment.
• LEGAL PROTECTION. With complex contracts and legal requirements, an experienced agent ensures that your rights are protected and the transaction complies with Wisconsin real estate laws.
• SUPPORT DURING INSPECTIONS. A buyer’s agent may recommend trusted home inspectors and help interpret the results, guiding you through the next steps if any issues arise.

On the other hand, self-representation may lead to several costly mistakes, such as:

• INCREASED LEGAL RISKS. By representing yourself, you may inadvertently create a dual-agency situation when dealing with the listing agent. This comes with significant legal risks, and most listing agents will not take this on without additional compensation.
• MISSED INSPECTIONS. It’s easy to miss vital inspections when you’re handling everything on your own; meanwhile, an agent will know exactly which assessments are necessary to uncover potential issues.
• DIFFICULTY HANDLING LENDERS, APPRAISALS, AND TITLE PROCESSES. The entire home-buying process – dealing with lenders, appraisals, title, and escrow – may become overwhelming and stressful. Missteps are bound to cause costly delays at best or result in the loss of your earnest money at worst. We will expertly guide you through each phase, coordinating all the details to keep the process moving smoothly and protecting your interests so that you avoid any breaches of contract.
• CHALLENGES IN A COMPETITIVE MARKET. In competitive markets, self-represented buyers may struggle to craft a strong enough offer to compete with other buyers. Without an agent’s guidance, navigating multiple offers and counter-offers may become overwhelming, causing delays or missed opportunities to secure a home.

Even with changes in how agents are compensated, the value of having a dedicated advocate on your side is clear – you’ll have expert support every step of the way, helping you secure the right home and the best deal.

FAQS: WHAT YOU NEED TO KNOW ABOUT THE NAR SETTLEMENT

Q: Will I have to pay my real estate agent’s commission as a buyer?

A: No, but you now have the opportunity to. The new regulations require buyers and their agents to negotiate or set up a commission structure prior to negotiating a home purchase. So, the buyer may agree to pay their agent’s commission – but they may also try to have the seller cover the costs.

Q: Does this mean the 5% to 6% commission fee is no longer required?

A: NAR has never required real estate agents to impose a 5 to 6% commission fee. However, this number is commonplace in many firms as fair compensation for services rendered, and commission for the buyer’s agent will attract more buyers to the listing.

NAR’s Handbook on Multiple Listing Policy clearly states this in their Antitrust Compliance Policy: “Realtors and their MLSs shall not fix, control, recommend, or suggest the commissions or fees charged for real estate brokerage services.”

Q: Are real estate agents no longer allowed to discuss offers of compensation?

A: No, real estate agents are still free to discuss offers of compensation and advertise commissions, as long as it’s not on the MLS. So, individual property websites, brokerage firm websites, and the websites of individual agents may still be used to discuss offers of compensation.

Q: Will home costs go down?

A: It’s a possibility. As we mentioned above, sellers may adjust their pricing to mirror the changes in how commissions are structured.

However, it’s important to keep in mind that home prices are still largely dictated by supply and demand. Commission fees are just one part of the equation.

NAVIGATE WISCONSIN REAL ESTATE WITH TRUSTED REALTORS

Navigating the changes brought about by the NAR settlement requires the help of an experienced Realtor.

At Broad Street Brokers LLC, we have more than 40 years of shared experience in helping buyers find their dream home in the beautiful state of Wisconsin. Whether you’re looking for a farm property, a condo, or a waterfront cabin, we’re more than happy to show you around! We’ll also ensure you receive the best value for your investment, adhering to the principles set in the NAR settlement.

Our team of experts serves Bayfield, Washburn, Cornucopia, Herbster, Port Wing, and the surrounding communities.

Ready to explore houses for sale in Wisconsin? Get in touch with us at 715.779.3220 or send us a message to get started.