Understanding the Impact of NAR Changes on Real Estate Values
On August 17, 2024, the National Association of Realtors (NAR) introduced changes that have ignited discussions within the real estate community. While these adjustments focus on commission structures and enhancing transactional transparency, many buyers, sellers, and industry professionals are concerned about their potential impact on real estate values. The reality is that, despite the chatter, these changes will not affect property values. Here’s why.
The Role of Commissions in Real Estate
A major aspect of the NAR changes involves commission structures, aiming for greater transparency about who pays what. Traditionally, real estate agents receive a commission negotiated between the listing and buyer’s agents, usually paid by the seller. However, this commission is merely a transaction cost and does not influence the intrinsic value of a property.
As appraisers, we evaluate factors such as location, size, condition, comparable sales, and market trends to determine a property’s value. Commission structures are financial agreements and do not factor into this valuation process. While they may impact the overall cost of a transaction, they do not affect the market value of the property itself. This distinction is crucial: commissions impact transactional expenses, not the appraised or market value.
MLS Sales vs. Non-MLS Transactions
Another misconception surrounds the difference between MLS (Multiple Listing Service) sales and transactions that occur outside the MLS or without brokers. MLS sales are typically considered “arms-length” transactions—conducted between willing buyers and sellers who have no hidden agendas. This framework is vital for ensuring accurate market value in appraisals. When appraisers analyze MLS sales, they can reasonably assume these transactions reflect the dynamics of supply and demand in the open market.
In contrast, non-MLS transactions may raise concerns in the valuation process. These sales are often deemed “non-arms-length”—involving parties with motivations that could distort pricing, such as family sales or distressed transactions. Appraisers approach these cases with caution, often excluding them from comparable market data, as they may not accurately represent true market conditions.
The August 17 Changes: Transaction Costs, Not Property Values
So, how do the NAR changes impact property values? In short, they don’t. Appraisers have historically excluded commissions from their analyses when determining a home's value. While commissions may influence a seller's net proceeds or what buyers consider in their budgets, they remain transaction costs rather than indicators of a property’s actual value.
The adjustments made by NAR enhance the transparency of commissions but do not change the fundamental drivers of real estate value. Ultimately, property value continues to be determined by core factors: supply, demand, location, and comparable sales.
Conclusion
Despite the recent changes, the fundamentals of property valuation remain intact. Commission structures are transaction costs, not determinants of market value. MLS sales will still be viewed as arms-length transactions, serving as benchmarks for fair market valuations. While the industry evolves toward greater transparency, real estate values remain rooted in the same principles as before.
Understanding the distinction between transaction costs and property value is essential for both buyers and sellers as the market adjusts to these new rules. The good news? Your home’s value is not shifting because of these changes—it remains firmly anchored in the realities of supply, demand, and the broader market.
Feel free to reach out to Trautman Real Estate Agency and Appraisal at 217-888-8585 if you have any questions or would like to learn more. We would be happy to assist you!