The recent National Association of Realtors (NAR) settlement has shifted the way new home offers and transactions are approached. While these changes primarily impact buyers and their agents, understanding the new landscape is crucial for developers to navigate next steps in repositioning a new development project’s marketing strategies and sales programs.
Key Changes Developers Need to Know
- Listing Agreements dated prior to August 17, 2024: For developers with active listing agreements signed prior to August 17, 2024, an amendment to the commission terms is required to reflect updated listing broker compensation terms; buyers’ agent commission terms are no longer required and may be amended in the sections reflecting seller concessions and marketing obligations required by the listing broker. The NAR settlement mandates that these agreements be amended to comply with the new rules regarding buyer’s agent compensation. Failure to make these adjustments could lead to non-compliance and compensation confusion with buyer’s concession incentives versus seller-offered bonuses.
- MLS Removal of Buyer’s Agent Commission Offers: One of the most significant changes is the prohibition on offering buyer’s agent commissions through the MLS. Previously, it was common practice to include a commission offer to incentivize buyer’s agents. Now, those fields have been completely removed from the MLS, shifting how compensation is discussed and offered.
- Introduction of the MLS Buyer Concession Field: In place of traditional commission offers, the MLS has introduced a new “Buyer Concession” field. This field cannot be used to offer or imply a buyer’s agent commission, and it is intended for listing agents to highlight any buyer concessions offered by the seller. The concession amount is flexible and can be applied in various ways such as covering closing costs or reducing a buyer’s interest rate, and the offered concession must benefit the buyer directly.
- Buyer-Broker Agreements & Seller-Offered Bonuses: Developers need to be strategic in offering “bonuses” as a primary incentive for buyer’s agents. Since buyer’s agents are now required to enter into a buyer-broker Agreement with their clients, this means buyers may be submitting offers with pre-negotiated compensation terms with their buyer’s agent. Buyers can instruct their agents to submit offers requesting that the seller pays the agreed upon compensation, but seller-offered bonuses should not modify the already agreed upon buyer’s agent compensation. Developers and their sales teams must consider deal structures that remain attractive without relying on bonuses as incentives for buyers’ agents.
Marketing Buyers’ Agents Commissions is Still Allowed
Without negating the point above regarding seller-offered bonuses, marketing and offering buyer’s agent commissions is still allowed and completely acceptable. Communication of such must be relayed outside of the MLS and through other forms of direct marketing such as:
- The project and listing broker’s website
- Signs and sign riders
- Advertisements
- Social media posts
- Direct communication via text, email, or phone calls
For developers, this change means adjusting marketing strategies to ensure compensation offers are visible in ways that attract buyer’s agents while staying within the new guidelines.
What Buyers’ Agents Need to Know for New Development Sales
The national compliance requirements are all applicable whether it’s a resale or new construction transaction. Most new development projects will continue to use the developer’s long-form purchase agreement which may include its own buyer-broker registration rules and supplemental documents confirming the initial property visit and client representation relationship.
- Requirement for a Buyer-Broker Agreement: Buyer’s agents must enter into a buyer-broker agreement with their clients before showing properties. The terms of this agreement are fully negotiable, giving the buyer and buyer’s agent flexibility in setting compensation based on the agent’s value and prevailing market conditions.
- Restrictions on Adjusting Compensation for Bonuses: The new rules advise against amending the buyer-broker agreement upward in response to a bonus offered by the seller. To ensure that agent compensation remains transparent, any additional funds should be used as buyer concessions or net back to the seller. The negotiated agreement between the buyer and their agent should not be influenced by extra incentives offered from the seller.
- Direct Requests for Seller-Paid Compensation: Buyers have the option to instruct their agents to submit offers requesting that the seller pays the agreed upon compensation in the buyer-broker agreement. This creates an additional negotiation point in transactions, where developers may cover buyer’s agent fees as part of the overall deal structure and purchase terms.
Buyers’ Agents are Still Relevant for Luxury New Development Projects
While many mid-market homebuilders across the country have been shifting their marketing strategies to capture direct buyers, the luxury, high-end segment will continue to remain broker friendly. A vast majority of affluent buyers seek professional representation for their home purchases. In the last decade, over 95% of new home transactions north of $1 million included a buyer’s agent in the sale.
Despite the changes in buyer’s agent compensations, developers are encouraged to keep the buyer’s agent fees in mind as sales programs continue. A marketing strategy to reposition buyer concessions and seller incentives is more important than ever.
- Focus on Buyer Concessions: Since the buyer concession field will play a pivotal role in how listings are viewed through the multiple listing systems, developers should maximize this feature by offering clear, flexible, and attractive concessions that appeal to different buyer profiles.
- Diversify Marketing Channels for Compensation Offers: With the traditional MLS channels no longer supporting buyer’s agent commission offers, developers should leverage their own platforms and advertising channels to communicate compensation clearly with a disclaimer advising against upward compensation modifications. This could involve using social media campaigns, website banners, or even direct outreach to buyer’s agents.
- Prepare for Negotiation Flexibility: The new rules place more power in the hands of buyers and their agents when it comes to determining compensation. To ensure sales profitability, developers should be prepared to negotiate new terms, concessions, or adjusted pricing to help close deals.
Navigating the New Normal
While the recent NAR settlement is reshaping the real estate industry, developers can easily adapt to maintain competitiveness. Despite restriction of traditional methods of offering buyers’ agent compensation, developers can take advantage of new opportunities that directly affect buyer’s overall purchasing decisions and costs. By staying informed and flexible, developers can continue to successfully market and sell their projects with a strategic marketing approach and competent sales team.
Sources: National Association of Realtors (NAR), Connect MLS, Real Estate News, NAR Practice Change and Implementation, NAR’s 2023 Profile of Home Buyers and Sellers
