What are the 2024 NAR Rule Changes?

Whether you are a first-time homebuyer, or a seasoned homeowner, you may not have heard of the new real estate rules that have changed how homebuying and selling works. The National Association of Realtors^® (NAR) implemented new rules that directly influence the homebuying process moving forward. So, how have these new rules of operations impacted buyers, sellers, and real estate agents?

To answer this question, and more, we will provide details on what you need to know about NAR’s new mandates and their effect on the homebuying and selling process.

What is NAR?

The National Association of Realtors^® is a well-known organization to those who work in the real estate industry. Currently, it has over 1.5 million registered members. Their members include an array of professionals who work in residential and commercial real estate. The association is best known for its code of ethics directing members of the organization to act in the best interest of their clients. Professionals who choose to join NAR’s ranks also have access to an internal database of listings and statistics that are only available to its members.

Due to a settlement agreement that resulted from a federal court ruling in 2023, NAR has introduced new rules in order to create increased fairness dealing with real estate.

How NAR changes will affect buying and selling homes

There are three major changes that have occurred since NAR’s new rules have been implemented, including how broker commissions are handled. Though both homebuyers and sellers are likely to feel the effect of these new rules, buyers are keen to face a more noteworthy change in their homebuying process.

New NAR rules breakdown

1. Removal of compensation information from listings

Typically, buyer’s and seller's agent commissions are between 5% to 6% of the home’s total cost. In the past, this percentage could be included in the property’s listing price as a way for that seller’s agents to advertise commission fees to buyer’s agents on the NAR-affiliated Multiple Listing Services (MLS). This meant that buyer’s agents could search for potential homes based on how much they would be paid, rather than strictly looking for homes that would meet the homebuyer’s needs.

However, commissions are no longer be represented on MLS databases. Since this information is no longer available online, these conversations are now conducted more directly in person or over the phone. This means that brokers will have the responsibility of informing home sellers of their commission offering options and help them better understand the strategy behind their decision.

2. Mandatory requirement for buyer-broker agreements (BBAs)

The biggest change enacted by NAR’s new rules is that buyers’ agents are required to have a signed buyer-broker agreement (BBA) with homebuyers before conducting any in-person or virtual showings of homes. The agent’s compensation must be clearly outlined in these signed agreements, meaning either the dollar amount or percentage of the transaction is plainly stated. This rule is meant to encourage full transparency, so homebuyers understand the full extent of the costs and services they are receiving from an agent.

This new rule is meant to solidify the agent-client relationship and formalize it early on in the homebuying process. However, as a homebuyer, it is important to understand that it increases your responsibility in what you may owe to your hired real estate agent. That means, signing multiple agreements with different agents could land you on the hook for all of their commissions for a simple home purchase. That is why it is important to take care in selecting your agent, and be wary of signing more than one agreement or hiring a real estate agent without thoroughly vetting them.

3. Buyers are responsible for setting broker commissions

With the introduction of mandatory BBAs, homebuyers are now the party responsible for determining their real estate agent’s commission. While this will offer buyers more flexibility, it also introduces more financial considerations earlier on in the homebuying process. Typically, commissions are split between the buyer’s agent and seller’s agent, so each can expect to make around 2.5% to 3% of the home’ purchase price. However, because current regulations bar buyers from including broker commissions in their mortgage financing, it is important to be aware of the potential out-of-pocket costs prior to signing a BBA. Remember, commissions are negotiable, and buyers should equip themselves with market knowledge and stay up to date on current rates as they set terms with both agents and sellers.

Key takeaways for buyers and sellers

NAR’s rule changes have already enacted a major shift within the real estate market, most notably felt by homebuyers as new complexities and considerations have been added to the homebuying process. However, the increased level of transparency between agent and client should have a positive impact on homebuyers and sellers in the long-term. We all have yet to see whether or not the cost of real estate transactions will become more affordable until more time has passed.

The best takeaway for the homebuyer to keep in mind is to take the time to do your own research. Having a solid understanding of NAR’s rules changes will set you up to be more informed and make decisions that fit your best interests as you jump into the homebuying process.