In March 2024, the U.S. Department of Justice (DOJ) and the National Association of Realtors (NAR) announced a proposed settlement aimed at increasing transparency and fairness in the real estate industry. While the agreement is still pending finalization, several rule changes were implemented in August 2024, significantly impacting the buying and selling process.

Key Points of the Proposed Settlement:

Increased Transparency: Real estate agents are now required to disclose all compensations paid upfront, but the responsibility for negotiating the buyer's agent’s compensation has shifted. No longer is this compensation set solely by the listing agent and seller; it is now a key part of the negotiation between the buyer and the buyer’s agent.

Changes to MLS Listings: Compensation amounts are no longer disclosed on the MLS. Instead, buyers and their agents must discuss and agree upon the buyer’s agent’s compensation as part of their broader negotiations.

Fiduciary Relationship Established Earlier: Agents are now required to enter into a formal agreement with buyers at the start of their working relationship, solidifying a fiduciary relationship early in the process. This benefits both parties by ensuring that the agent is fully committed to acting in the buyer’s best interests from the outset.

Flexibility in Negotiation: These changes provide consumers with more power to negotiate terms that best fit their needs, ensuring that the compensation structure is transparent and fair.

What This Means for Consumers:

For Buyers:

Early Fiduciary Protection: Establishing a fiduciary relationship early on ensures that your agent is fully committed to representing your best interests throughout the buying process.

Responsibility in Negotiating Compensation: You now have the responsibility to negotiate the buyer’s agent’s compensation, allowing you to tailor this to your budget and needs.

More Control and Clarity: With compensation no longer set by the seller, you gain more control and a clearer understanding of the costs involved in the buying process.

For Sellers:

Increased Flexibility in Contribution: Sellers may still contribute to the buyer’s agent’s compensation but now have more flexibility to structure this contribution in a way that aligns with their overall pricing and marketing strategy.

Enhanced Negotiation Power: With buyers now directly responsible for negotiating their agent’s compensation, sellers can focus on negotiating other aspects of the sale, potentially leading to more favorable terms for the seller.

FAQs for Buyers and Sellers in California

Q: How will the new compensation transparency affect my home buying or selling process?

A: The new rules require buyers and their agents to negotiate the buyer's agent’s compensation directly. This gives you more control but also means you’ll need to have a clear discussion with your agent about their fees and services.

Q: How does the earlier establishment of a fiduciary relationship benefit me as a buyer?

A: By entering into a formal agreement early in the process, you ensure that your agent is legally bound to act in your best interests from the very beginning, providing you with greater protection and advocacy.

Q: Can I negotiate the compensation rates with my real estate agent?

A: Yes! The proposed settlement supports greater flexibility in compensation negotiations. As a buyer, you can work with your agent to agree on a rate that aligns with your financial goals and expectations.

Q: How do the new MLS rules benefit me as a buyer?

A: With compensation no longer disclosed on the MLS, you gain the power to negotiate directly with your agent, ensuring that the terms are favorable to you and aligned with the services provided.

Q: What should I consider when choosing a real estate agent under these new rules?

A: Look for an agent who is transparent, willing to negotiate, and provides clear value for the compensation they receive. Make sure they are aligned with your real estate goals and that you fully understand the compensation structure.