By now, you may have heard about the settlement between the National Association of REALTORS ® (NAR) and home sellers. A Lawsuit brought against the NAR by home sellers related to broker commissions. Under the terms of the proposed settlement agreement the NAR would pay $418 million over the next four years. Here’s a breakdown of what’s been happening and what it means for real estate professionals and for YOU as consumers.
THE LAWSUIT: The lawsuit, filed by the U.S. Department of Justice (DOJ) in November 2020, accuses NAR of anti-competitive practices related to its rules for Multiple Listing Services (MLS). Specifically, the DOJ alleges that NAR’s policies restrict competition and limit consumer choice by requiring all properties to be listed on an MLS, even if the seller does not wish to do so. To be featured on the MLS sellers must offer a commission to the agent who ultimately brings in the winning buyer. Historically, this has resulted in a 5% to 6% total commission, (a commission that has always been negotiable between the seller and their agent) with half going to the seller’s agent and half to the buyer’s agent.
Here’s the catch, though: The buyer doesn’t pay their agent’s fee directly. Instead, the commission is fully paid by the seller as part of their closing costs. According to the recently settled suit, as well as other litigation, this amounts to a form of antitrust, allegedly reducing competition and pushing up commissions higher than services warrant.
PROPOSED CHANGES: NAR agreed to create a new MLS rule prohibiting offers of compensation on the MLS. This would mean that offers of compensation could not be communicated via an MLS, but they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals. This would increase the likelihood that the potential buyer would have access to ALL properties listed on the MLS and not just those that would offer the highest compensation to the agent.
NAR also agreed to create a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers before the buyer tours a home. This is called the Buyer’s Brokerage Agreement. NAR has long encouraged its members to use written agreements to help consumers understand exactly what services and value they provide, and for how much.
IMPACT ON REAL ESTATE PROFESSIONALS: Agents representing a buyer will now be required to have them complete a buyer’s brokerage agreement which includes a written and agreed upon compensation in assisting them find a home to rent or purchase. Seller’s agent will
If proposed changes are implemented, this could have a significant impact on real estate professionals, particularly those who rely heavily on pocket listings and off-market transactions. While these practices have long been controversial, they have also been a valuable tool for agents and their clients in certain situations. Real estate agents may need to adjust their strategies and practices to comply with the new rules and regulations.
IMPACT ON CONSUMERS: For consumers, the proposed changes could lead to greater transparency and access to information in the real estate market. By requiring agents to share all listings with other MLS participants, buyers and sellers may have more options and opportunities to find the right property or buyer for their needs. However, some critics argue that the changes could also lead to increased competition and potentially higher costs for consumers. Buyers would now more than ever be expected to pay the agent for representing them during a transaction (either for a rental or purchase), a fee that was traditionally paid for a seller at closing. While buyers may have more options to choose from and find the perfect property for their needs, this can increase competition that could also drive up prices and make it more challenging for buyers to secure their desired property.
Buyer’s agent can continue to negotiate compensation on their behalf with the seller, it just could not be advertised on the MLS. If buyer’s agent is not able to negotiate compensation from the seller, the buyer would need to pay for the agent’s compensation at an agreed upon fee on the onset of the relationship. This could strain first-time homebuyers who may be exercising their max budget to buy a home in the price point and area they desire.
Similarly, sellers may benefit from the proposed changes by gaining more exposure for their listings. With all properties being shared with other MLS participants, sellers may attract more potential buyers and ultimately receive higher offers for their properties. However, increased competition among sellers could also lead to longer listing times and potentially lower selling prices.
Sellers could potentially keep more of their earnings by only being required to pay their own representation and not the buyer’s agent. Sellers who choose not to pay for the buyer’s agent commission may find their homes staying on the market for much longer and may need to resort to price reductions to sell. Sellers can, however, continue to offer compensation to the buyer’s agent; those that do will more than likely increase the likelihood of finding a buyer at a much quicker rate than those that do not; potentially resulting in the home selling with less days on the market for or at above asking price.
CONCLUSION: The NAR lawsuit and proposed changes are significant developments that could reshape the real estate industry in the coming months and years. While the outcome of the settlement remains uncertain, it’s clear that change is on the horizon for real estate professionals and consumers alike with some changes becoming effective as early as mid July 2024.
About the National Association of REALTORS®
The National Association of REALTORS® is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries. The term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict Code of Ethics.
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