The real estate industry is bracing for significant changes as the National Association of Realtors (NAR) implements changes as part of a proposed settlement of multiple ongoing lawsuits that will overhaul broker compensation practices. While much of the discussion has focused on home purchases, the rental market is also poised to experience profound shifts. We spoke with Kathryn Couture, senior vice president of the Atlantic and Midwest regions at Altair Global, and Andrea Gullickson, GMS, MIM, senior manager of destination services at IOR Global Services, to explore how these changes will affect renters and the broader real estate ecosystem.
Understanding the New Broker Compensation Rules
Currently, landlords in most states typically pay the full commission for both their agent and the renter’s agent. However, the impending NAR-driven changes will eliminate this obligation. "Potential tenants who want to rent a landlord-owned property will typically partner with a real estate agent," Gullickson says. “Once the NAR [settlement] goes into effect, the landlord will no longer be obligated to pay the renter’s agent commission. Therefore, if a renter would like the advantage of using an agent to support their search, then they may be responsible for compensating the agent.”
This shift means renters will need to sign a tenant representation agreement, guaranteeing that their broker will be compensated, either by the landlord or the tenant. Couture highlights the complexity this introduces: “This settlement removes offers of compensation and requires a purchaser or renter to sign a buyer representation agreement upfront, which obligates the transferee to compensate the agent without knowing if the seller or lessor is offering any compensation to offset this obligation.”
Implications for Renters and Real Estate Brokers
The lack of transparency in broker compensation poses several risks for renters. “Renters will no longer be able to rely on the landlord paying the commission for their agent,” Gullickson says. “When the renter’s agent shows the property to their client, should they choose to move forward with renting a unit, they will not know if the landlord will be paying their commission or if the renter will need to pay them.”
For assignees, this could mean limited access to properties and increased financial responsibility. “Transferees will be responsible for the compensation owed to the agent that assists them, and it is not covered as a benefit today,” Couture says. “This means the transferee will be responsible to pay the fee or look for properties where the lessor will not be charging a fee, which will limit the properties they may see.”
Strategies for Real Estate Management Companies (RMCs) and Destination Services Providers (DSPs)
Both Couture and Gullickson emphasize the importance of education and communication in navigating these changes. “RMCs are educating their counselors/consultants in real time to make sure they are properly setting expectations and counseling their transferees on what to expect and what their obligations are/may be,” Couture says.
Gullickson adds, “RMCs need to educate their clients that the broker landscape is changing and encourage them to pay the EEs broker fee if needed.”
DSPs will also play a crucial role in this new environment. “DSPs need to be setting proper expectations for incoming assignees so that they understand they may need to pay a broker fee and/or understand the implications of working without the expertise of a broker,” Gullickson says. Additionally, they must report back to RMCs on how the new law is playing out in the market.
Long-Term Effects on the Rental Market
The long-term implications of the lawsuits and the NAR settlement will likely include increased transparency and adjustments in corporate policies to cover broker fees. “Long term, compensation will be transparent, and clients will address adding it to their policies or asking their employees to utilize their miscellaneous allowance or flex budgets for this cost,” Couture says. However, Gullickson warns of potential attrition within the real estate profession: “We could see an attrition of real estate agents who would prefer not to work under this new regulation.”
In markets like New York, New Jersey, and parts of Connecticut, Massachusetts, and Rhode Island, where tenants have traditionally paid the full broker fee, the changes will be less pronounced. “In these markets, the tenant has always been responsible for paying the full broker fee. There will be no change in commission in these markets as a result of the NAR lawsuit,” Gullickson says.
As the real estate industry adapts to the impending changes brought about by the buyer broker compensation lawsuits, renters, brokers, and RMCs must prepare for a new landscape of broker compensation.
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