National Association of Realtors (NAR) Settlement: Key Takeaways

The recent National Association of Realtors (NAR) Settlement introduces significant changes to broker compensation practices in the real estate industry. The settlement requires greater transparency in broker commissions and aims to create a more competitive and fairer real estate market by eliminating practices that could potentially mislead homebuyers. The changes this settlement brings may influence home prices and market dynamics, affecting both homebuyers and sellers.

What did the NAR lawsuits allege?

A series of class action lawsuits filed against the National Association of Realtors and several large real estate companies alleged violations of federal antitrust law and conspiracy to require home sellers to pay inflated commissions to the broker representing the buyer.

The claims related primarily to the NARs “Cooperative Compensation Rule”, which requires listing agents/brokers to make a set, non-negotiable offer for the buyer’s broker compensation when listing a property on a Multiple Listing Service (MLS).

What was the outcome of the lawsuits?

The NAR settled with the nationwide class of homeowners represented in the class action lawsuits and reached an agreement requiring the NAR to pay over $400 million in damages to home sellers across the United States. The settlement will also result in widespread changes to the NARs rules regarding broker compensation and the Multiple Listing Service (MLS) system.

The settlement received preliminary court approval in April, and the resulting practice changes are expected to take effect on August 17, 2024.

What rule/practice changes will result from the NAR settlement?

• Written agreements: Real estate agents who list properties on a Multiple Listing Service (MLS) who are working with buyers must now have written agreements with the buyers before showing them a home. These agreements must include a clear disclosure of the agent’s compensation and how it will be determined.
• MLS compensation: Compensation offers can no longer be communicated on the Multiple Listing Service (MLS), but buyers and real estate agents can negotiate them off-MLS.
• Listing filtering: Reinforce that filtering of listings on the Multiple Listing Service (MLS) can not be done based on the buyers agent commission offered.
• Free services: Brokerage services can no longer be advertised by Multiple Listing Service (MLS) participants and subscribers as being free unless they truly won’t receive any financial compensation for them.

How will the NAR settlement impact homebuyers and sellers?

• Increased Transparency: Home sellers must now disclose the commission (or rate of compensation) they will pay to the buyers’ real estate agent/broker, which will make the transaction process more transparent. This may also influence how sellers set their prices and negotiate.

• Potential Cost Savings: Sellers may have more flexibility to negotiate broker commission rates, which could reduce overall selling costs and potentially lead to more competitive commission rates. With sellers saving money on broker commissions, they may be more open to things like closing-cost contributions, which can save buyers money.

• Shift in Negotiation Dynamics: The new rules may shift some of the negotiating power to buyers, as they will now be informed about the broker fees being paid. Home sellers and their real estate agents may need to be more strategic about the pricing and marketing of their listings to attract buyers.

• Market Competition: With buyers being better informed and more empowered to negotiate, sellers could face increased competition. Sellers and their real estate agents/brokers will need to make their listings stand out and highlight unique selling points as buyers will be more discerning and focused on getting the best value.

All-in-all, the NAR settlement brings about significant changes that may impact home buyers, home sellers and the real estate professionals they work with. Increased transparency and potential cost savings could prove beneficial for sellers, while the shift in negotiation dynamics and increased buyer awareness may require sellers to be more strategic and proactive. For buyers, the settlement could provide improved transparency surrounding broker compensation, increased negotiation power and the ability to make more informed decisions in the real estate market. As the industry begins to shift due to these changes, buyers, sellers and real estate professionals will need to adapt in order to navigate the changing real estate landscape with greater awareness and strategy.