Five Things Tennessee Home Buyers Need to Know about the NAR Settlement

Earlier this year, The National Association of REALTORS (NAR) reached an agreement with plaintiffs to end litigation of claims brought on behalf of home sellers related to broker commissions. 

The recent settlement reached by the NAR introduces several significant changes that will impact both home buyers and sellers in Tennessee. This shift, particularly around the buyer representation agreement and commission structures, alters some long-standing practices in the real estate industry. However, it also reinforces the importance of using a Realtor to navigate these changes effectively.

Tennessee REALTORS (TNR) is one of Tennessee’s largest and most influential trade associations. Consisting of 20 local associations and over 36,000 members, the association provides various services, including legislative and regulatory advocacy, professional development, professional standards training, and transaction-management solutions. Their members can help homebuyers navigate these latest changes with confidence by offering advice specific to the Tennessee housing market.

Recent changes stemming from the National Association of Realtors (NAR) settlement are reshaping the real estate landscape in Tennessee. Here’s what homebuyers and sellers need to know about these important developments.

1. Buyer Representation Agreements Take Center Stage

The NAR settlement has brought increased attention to buyer representation agreements, documents that were often overlooked in the past.

What that means for homebuyers:

• These agreements now clearly outline agent services and compensation terms
• Buyers have more flexibility to negotiate services and fees
• Transparency in agent-client relationships is emphasized

Traditionally, many homebuyers often overlooked this document, as they assumed that the seller was primarily responsible for paying the commission of both the listing agent and the buyer’s agent. The settlement, however, brings the buyer representation agreement into the spotlight by ensuring that homebuyers are more informed about their obligations and the commissions involved.

This change means that homebuyers in Tennessee will now engage more directly with their Realtor when it comes to compensation. The buyer representation agreement will lay out the exact services the Realtor will provide and clarify the payment terms. This transparency is crucial because it fosters better understanding and trust between buyers and agents. For buyers, this also opens the door to more flexible arrangements. If a buyer agrees to pay their agent directly or negotiate the terms of the commission, they may have more bargaining power in the transaction. 

2. Commission Structures Become More Flexible

One of the most significant changes is real estate commissions are now more negotiable.

What that means for homebuyers:

• Sellers may have more room to negotiate listing agent fees
• Buyers could see changes in how buyer’s agent commissions are handled
• Both parties are encouraged to discuss commission structures openly

Previously, there was a widespread assumption that commission rates were fixed and non-negotiable. The settlement emphasizes that these commissions are, in fact, negotiable, creating new opportunities for both homebuyers and sellers to advocate for fairer compensation terms.

In Tennessee, this means that buyers and sellers can now have more open discussions with their agents about commission rates. For sellers, this may result in lower overall costs, as they can negotiate down the commission they pay to the listing agent and, by extension, the commission shared with the buyer’s agent. For buyers, the ability to negotiate commissions could affect how much they need to contribute to their agent’s fees, offering potential savings in the home-buying process.

3. The Cooperative System Remains, with a Twist

Despite these changes, the cooperative compensation system remains in place, where sellers offer compensation to buyer’s agents.

What that means for homebuyers:

• The system continues to promote cooperation between agents
• It helps ensure buyer representation without upfront costs to buyers
• The terms of this cooperation are now more transparent and negotiable

The cooperative compensation system benefits homebuyers by ensuring they have access to professional representation without being solely responsible for the agent’s fees upfront. It also benefits sellers by expanding the pool of potential buyers, as more buyers will be able to afford homes with the help of their agents. 

4. Why You Still Need a Realtor (Now More Than Ever!)

In this new environment, the expertise of Realtors becomes even more crucial.

What that means for homebuyers:

• They navigate complex negotiations in a more flexible market
• Their local market knowledge is invaluable in pricing and strategy
• They help interpret and implement these new industry changes

While the settlement brings about changes to commission structures and transparency, it reaffirms the indispensable role Realtors play in the home-buying and selling process. Navigating the complexities of the real estate market in Tennessee requires expertise, negotiation skills, and an understanding of local trends — all areas where Realtors excel.

Realtors provide value in numerous ways, from helping sellers price their homes accurately to guiding buyers through the intricacies of mortgage approvals, inspections, and closing procedures. The market knowledge that a seasoned Realtor offers can save clients time and money by avoiding common pitfalls.

For homebuyers, the personalized service that a Realtor provides, such as identifying properties that fit specific needs and negotiating the best deal, remains invaluable. Sellers, on the other hand, benefit from Realtors’ ability to market homes effectively, manage showings, and close deals swiftly.

5. In Tennessee’s Growth Markets, the NAR Settlement Means More Flexibility

In Tennessee’s booming markets like Nashville, Chattanooga, and Memphis, these changes offer new opportunities.

What that means for homebuyers:

• More room for customized real estate services
• Potential for innovative pricing models
• Increased importance of understanding local market dynamics

In Tennessee, where the real estate market has experienced steady growth, the NAR settlement means more transparency and flexibility in transactions. Buyers and sellers in markets like Nashville, Chattanooga, and Memphis can now engage in more open discussions about compensation and representation, leading to better-informed decisions.

Now, the need for a Realtor is even more important as commission structures evolve and buyer representation agreements become more detailed. The intricacies of buying and selling a home can be daunting for new and experienced homeowners alike. TNR’s members are well-versed in the ins and outs of Tennessee homeownership and are committed to guiding buyers through the complicated process.

The NAR settlement marks a significant shift in the real estate industry, particularly for homebuyers and sellers in Tennessee. With more transparency around buyer representation agreements and the negotiability of commissions, consumers will have greater control over the terms of their transactions.