Busting All Myths Surrounding The Recent NAR Settlement Case

U.S. Department of Justice Lawsuit (2020)

In November 2020, an antitrust lawsuit was filed by the U.S. Department of Justice (DOJ) against the National Association of Realtors (NAR). It was alleged that the policies of NAR regarding Multiple Listing Services (MILS) were monopolistic and throttled competition. It harmed the interests of home sellers and prevented innovative business models from emerging. 

What is the Settlement?

The National Association of Realtors has recently reached a settlement agreeing to pay $418 million in damages. This is in response to real estate commission lawsuits filed against it. Apart from the monetary compensation, NAR has also decided to do away with the “Participation Rule” that required sellers’ agents to compensate buyers’ agents.

Before we get further into how a real estate agent, either from the seller’s or buyer’s side is affected by this settlement, a quick word on how to get a real estate license. The main two factors here are going through the real estate course and passing the licensing exam. On completion of these two stages, a real estate license is issued to an aspiring real estate agent.   

Now, coming back to the NAR Settlement, there have been several outrageous misconceptions about it. Some of them are listed in detail below. Read more.

Myth #1
The NAR settlement is reducing brokers’ compensation

The settlement does not limit the fees that realtors charge for their services. These fees have always been subject to negotiation with clients and remains so even now. 

Myth #2
The National Association of Realtors (NAR) settlement will allow sellers to no longer pay a commission to a listing agent when the agent represents both the buyer and the seller in a transaction.

It was never compulsory for a seller’s agent to offer compensation to the buyer’s agent but that has been the traditional practice till now. In the past, there was a rule that required a minimum amount of compensation on Realtor-owned MLS, but it could be as low as $1. However, this restriction has been lifted, and currently, MLS accepts all listings, regardless of the compensation offered to the buyer’s agent.

Myth #3
The settlement prevents sellers from paying commissions to buyer's agents and frees them from financial obligations.

The new mandate states that properties that offer compensation to a buyer’s agent are not allowed to be displayed on the association-owned MLS. However, this restriction only applies to the MLS, and not other forms of marketing. Sellers can still choose to pay compensation to a buyer's agent as a way to make their property more attractive to buyers. Even if a seller decides not to pay compensation, they may still end up paying the cost indirectly. This is because buyers can include a contingency in their offer, which requires the seller to cover the cost or make other concessions.

Myth #4
The settlement is expected to significantly reduce prices and make homeownership more affordable once again.

Real estate values depend on supply and demand. Fees in a real estate transaction go beyond commissions and include other charges. A 1% reduction in commission won't affect the home's value much. The reason homeownership is becoming less affordable is that home values have increased significantly.

Myth #5
The NAR settlement allows buyers to negotiate representation fees.

If you are a homeowner, it is highly probable that you were satisfied to have the seller pay your agent's fees so that you wouldn't have to. Further, the commission paid to a buyer’s agent was included in the home price that was covered by mortgage. Hence buyers did not have to make standalone out-of-pocket payment to the agent. Along with the down payment, this is an additional cost that buyers have to bear. 

Myth #6
The National Association of Realtors' settlement will provide significant compensation to consumers who were harmed in recent transactions with Realtors.

The settlement amount is significant, but when divided by the number of individuals who could potentially qualify for it, the amount per person is around $10. Interestingly, attorneys stand to gain most from this settlement as they have claimed almost $80 million in cost of the case. 

Why is there so much confusion?

There are people who are confused because they don't really understand how real estate deals happen. Commissions, which are the money agents get, are a big deal in these deals. When there are changes in how they're talked about or shown, it seems like agents' paychecks are being messed with. But the real problem is about how the deals are done and making sure everyone knows what's going. It’s all about giving transparency. 

Let’s talk facts first

One of the stories against NAR that is making the rounds is that is that they have fixed a commission rate of 6%. But that's not true since commission rates between agents and their clients have always been negotiable. They'll stay that way. Also, the prices of houses are decided by market forces, not NAR.

The settlement plan is such:

1. Fixes problems with NAR and almost every member, including state, local, and territorial REALTOR® groups, all association-run MLSs, and brokerages where a NAR member was the main person and handled residential sales of $2 billion or less in 2022.
2. Keeps the choice of cooperative pay intact for people wanting to buy or sell a home, but they have to offer it off the MLS.
NAR wanted to include everyone in the deal, but other big settlements by different companies affected how things went. During the talks, NAR also talked to lots of different members to hear their thoughts and what they wanted.

Are you protected? How to know?

As per the NAR Settlement, all members of the association are covered by the agreement. Those not included are HomeServices of America, the last co-defendant in the Sitzer-Burnett case, and the workers of the co-defendants in the Gibson and Umpa cases.
Independent contractor licensees and the following brokerage firms are covered by the Settlement. 

●   Realty ONE Group Inc.
●   United Real Estate
●   Compass Inc.
●   Douglas Elliman Inc.
●   Hanna Holdings Inc.
●   eXp Realty LLC
●   eXp World Holdings Inc.
●   The Real Brokerage Inc.
●   Redfin Corporation
●   Weichert, REALTORS®
●   Douglas Elliman Realty LLC
●   Real Broker LLC
●   HomeSmart International LLC
●   Howard Hanna Real Estate Services
●   At World Properties LLC

All the other REALTORS who are NAR members when they get told about the class are included in this deal. However, brokerage firms that did more than $2 billion in transactions in 2022 are excluded from the deal. 
Those members and state/local REALTOR groups need to follow the new rules in the agreement when the class notice is issued mid-July.  

What are the expected changes?

The settlement says you have to make two important changes in how you do business.
1. First, you have to follow a new rule that stops you from making offers of payment on the MLS. Instead, you can only talk about payment options outside the MLS, like when you negotiate with clients and real estate pros.
2. Second, there's a new rule saying you have to make written agreements with buyers before they check out a house. This ensures that clients know what services they're getting at what cost. 

It is interesting to note that, NAR still says that they didn't do anything wrong and believes that working together for payment is good for clients. 

During the legal process, NAR thought about different options, like agreeing to a settlement or keep fighting the Sitzer-Burnett case and other similar cases. If they kept fighting and lost, it might have meant big trouble for NAR and its members involved.

Let’s move forward

Real estate has been around for a long time in our country, like 124 years. It's been through a lot, like tough times, rule changes, and new technology. Now, it's adjusting to Artificial Intelligence. Agents not only help their local areas but can also help people worldwide faster and better.

About 27 million people move every year in the United States alone. There's a new group of people who care more about their lives and less about handling real estate stuff themselves. Even with lots of information available, they still want an expert's advice for big decisions like buying or selling a home.

As the real estate world changes, it's important for everyone—you, agents, buyers, and sellers—to stay open-minded. If you learn and talk clearly, it will definitely help clear up any misunderstandings and make the transition smoother.

The goal of all these changes is to make the real estate market fairer and easier to understand. By getting rid of rumours and wrong information, we can see why these lawsuits and rule changes are happening and make sure everyone involved in a deal feels like they know what's going on and are treated fairly.