My Opinion on the Likely Impact of the Recent NAR Settlement on Seller and Buyer Commissions in Minnesota

I believe the recent settlement and changes in commission rules will have less of an impact than many think; quite frankly, the way MN Real Estate and Management has been structuring commissions and having conversations for the last three years aligns with the suggestions. I don’t think this lawsuit would ever have happened in MN. That being said, recent developments have brought changes to how seller and buyer commissions are handled. The National Association of Realtors (NAR) settlement has prompted discussions and adjustments within the real estate industry, potentially affecting both sellers and buyers in the state.

One of the key aspects of the NAR settlement revolves around the transparency of commissions. Historically, real estate commissions have been bundled together and typically paid by the seller, with a portion allocated to the buyer’s agent. However, the settlement emphasizes the need for clearer delineation of these commissions, aiming to provide greater transparency to both buyers and sellers regarding the breakdown of fees. At MN Real Estate and Management, we have always clearly delineated our seller commissions and the buyer agent commissions separately for our clients. With open negotiation on what commissions our sellers want to cover.  We’ve also have a unique provision in case of dual agency, which has saved our clients from paying the full seller and buyer commissions if we were able to bring the buyer. I believe we are the only brokerage in the are to implement these changes years ago.

As I have said many times, I do not believe the old mindset and commission structures that worked in the 80s, 90s, and into the 21st century are sustainable. I have been calling this out for years, and, in my humble opinion, the recent class action suit is a result of realtors (from other states) pushing the envelope and not following disclosure rules and having honest and open conversations, which MN has pushed for and required in its documentation for years.

For sellers in Minnesota, understanding how commissions are structured and distributed has always been easier if the forms provided by MNAR are used and discussed. While the seller has traditionally borne the burden of commission payments, the settlement could lead to discussions regarding potential changes in commission structures or agreements. I think many are hoping that buyers will have to pay thousands out of their pocket to hire a buyer agent, but that will likely not end up being the case. The bottom line is sellers that refuse to pay little or no compensation to a buyer agent will simply not have the same chance of selling their home for the highest price.  We have hundreds of realtors in the area working with thousands of buyers at a time. Most sellers will still choose to compensate buyer agents for showing and selling their property. Although buyer commissions cannot be listed on the MLS, the vast majority of seller agents will still offer buyer agents compensation to sell the property.

Buyers in Minnesota may also experience changes in how commissions are handled. While most buyers historical have not directly paid commissions to their agents, the transparency brought about by the NAR settlement could influence their decisions and negotiations. With clearer information on commission structures, buyers may have a better understanding of the financial aspects involved in their real estate transactions, potentially impacting their overall approach to purchasing property. I do not believe that any buyers are going to be shelling out huge retainers upfront or several thousands of dollars to a buyer agent any time soon. Possibly, things will start to move in that direction depending on how other brokers choose to navigate things. One of the biggest changes will be that buyer agents are prohibited from even showing a property to a buyer without having a buyer contract signed and agreed upon. That will be a huge shift for some agents who have traditionally been willing to show a buyer several properties and build a relationship with them and then have a buyer agreement signed once they find a potential property.

Moreover, the settlement could prompt shifts in how commissions are negotiated and allocated between listing agents and buyer’s agents. In Minnesota, where traditional commission rates have been prevalent, there may be increased flexibility and diversity in commission agreements. Sellers and buyers alike may have more room for negotiation and customization based on their specific needs and preferences. We have been proud of the flexible and transparent commission structures we have used with our clients at MN Real Estate and Management, and honestly, the changes are very much in line with what we have already been doing. For some brokerages, the changes will represent a huge shift, forcing them to answer a lot more questions from sellers about how they do commissions.

Additionally, the NAR settlement underscores the importance of ethical standards and practices within the real estate industry. Transparency in commission disclosures not only benefits consumers but also promotes trust and integrity in real estate transactions. Minnesota has some of the highest standards of transparency and accountability in the country. The changes will honestly mean less in our state because our state association has had great attorneys working for years to promote fairness and transparency. Check out our article Agency Relationships in Real Estate Transactions Disclosure to learn more about the legal and ethical relationship between Realtors and their clients in MN.

I have had a number of great conversations and calls from folks asking about these changes and how they will affect our commission structures. Reach out anytime if you would like to discuss this as a potential seller or buyer in central MN. However, it is important to understand that, in the end, the attorneys for the state associations are going to be the ones to help us brokers navigate these changes as we work to implement them in the fairest way possible.

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