The recent National Association of Realtors (NAR) ruling has introduced significant changes to the real estate landscape, and home builders must be proactive in understanding how to adjust. In a recent Sales and Marketing Power Hour, industry leaders Kimberly Mackey from New Homes Solutions and Carol Morgan from Denim Marketing shared their expertise on navigating these changes, specifically focusing on how builders can handle compensation for buyer’s agents.

What does the NAR settlement mean?

One of the key updates in the new rules is the removal of cooperative compensation fields from the MLS. Builders now need a clear strategy on how to approach compensating buyer’s agents. The hosts discussed several payment options that builders can consider:

1. Buyer Compensates the Broker Directly

With this option, the buyer pays their agent directly under a Buyer Broker Agreement (BBA). The builder can choose to offer concessions or not, leaving it up to the buyer to negotiate compensation with their agent. While this reduces the builder’s direct involvement in paying commissions, it is a risky move for builders wanting to attract outside agents, given that 72% of new home sales involve outside real estate representation. However, if the builder offers sufficient concessions to the buyer, both the agent and buyer can be satisfied if transparency is maintained.

2. Buyer Negotiates a Credit from the Seller

In this scenario, the buyer and their agent negotiate a credit from the builder as part of the purchase and sale agreement to cover the broker’s compensation. Mackey and Morgan say this is the least favorable option for builders. The lack of transparency creates confusion and distrust, which can damage relationships with both the general brokerage community and potential buyers.

3. Listing Broker Enters into a Compensation Agreement with the Buyer’s Broker

Although not covered in detail during the discussion, another approach is for the listing broker to set up a compensation agreement with the buyer’s broker. This situation is less common since many builders directly enter agreements with buyers. Still, it’s worth considering ensuring clear terms on agent compensation.

4. Seller Enters into a Compensation Agreement with the Buyer’s Broker

This is the most common method and remains a preferred option for most builders. The builder, acting as the seller, directly compensates the buyer’s broker, ensuring clarity from the start. However, challenges can arise when the compensation offered by the builder doesn’t match the requirements in the original BBA. If the builder offers less than what the BBA mandates, the buyer may be responsible for covering the difference. This could limit the number of showings a builder receives if agents decide not to show homes where their buyers might have to pay out of pocket to cover the commission gap.

Balancing Compensation to Attract Realtors

The discussion also touched on the risks of overpaying or underpaying agents. Undercompensating may deter agents from showing builders’ homes while overcompensating can lead to buyer expectations that they should receive part of that commission.

To mitigate these risks, the hosts emphasized the importance of a well-designed VIP Realtor® program. These programs can help foster strong relationships with agents, offering non-monetary rewards like handwritten notes, small gifts, or raffles, which build goodwill and encourage positive engagement beyond the transaction.

As builders adjust to the new NAR rules, careful consideration of how they compensate buyer’s agents is crucial. Clear communication, transparency, and relationship-building will be essential strategies for builders looking to thrive in this evolving landscape. For a more detailed look at the strategies discussed, we recommend listening to the full Sales and Marketing Power Hour recording.

By implementing these insights and choosing the right compensation path, home builders can ensure they remain attractive to real estate agents and buyers.

Sales & Marketing Power Hour occurs every other month on Wednesdays at noon! Mark your calendar to join industry experts and head coaches Kimberly Mackey, founder and sales and marketing management consultant of New Homes Solutions Consulting, and Carol Morgan, founder and president of Denim Marketing, for this free webinar series focused on your success.

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