How can real estate agents benefit from NAR settlement?

The real estate industry of the United States is on the cusp of a sweeping change in the way people buy and sell homes and agents and brokers earn commissions. 

In March 2024, the US Department of Justice reached a landmark judgment where the National Association of Realtors (NAR) agreed to a multimillion-dollar settlement. The historic move has turned around the industry onto itself with many hailing it as a welcome and long overdue move.  

If you have not been following the real estate market updates, here’s a quick summary of what went on with the NAR settlement. 

The National Association of Realtors (NAR) faced a legal storm against their decade-old fixed commission structure. The lawsuits challenged and complained against the standard practice of keeping commission rates fixed for agents leading to artificially high costs.  

Embroiled in a series of antitrust lawsuits from consumers, the NAR has agreed to a settlement by paying $418 million in damages and significantly changing the rules by which they run their business. 

According to the settlement between the NAR and the US Department of Justice, the long-withstanding model of charging 5 to 6 percent commission for the buyer’s agent will no longer be the standard practice. 

In addition to abolishing the standard commission structure, the NAR settlement also agreed to transform their old, anti-competitive practices to give way to more transparent, efficient, and flexible rules. 

Being the largest and one of the oldest trade associations in the country, the National Association of Realtors (NAR) comprises more than 1.5 million active members. These include real estate agents, brokers, realtors, home appraisers, and attorneys among other professionals. 

With such a historic judgment, the impact on the real estate industry is going to be unprecedented. Many industry experts and forecasters predict a major shift in the way real estate agents, brokers, and realtors work and earn. 

If you are wondering what exactly is going to change in the future and how big of an impact it will be, this article will answer your questions. 

We are going to dive deeper into the NAR settlement and its immediate and future implications for the real estate industry, its professionals, and consumers. Let’s find out! 

Understanding the NAR settlement

Arising from a class action lawsuit filed by home sellers in Missouri, the US Court of Justice decided against the NAR and resulted in a whopping $1.8 billion in damages for price fixing. 

To mitigate the risks involved with the litigation against its members and their business practices, the National Association of Realtors agreed to settle. 

The settlement includes paying monetary compensation along with making concrete, immediate changes to the practices and rules of the real estate industry. 

The NAR is home to more than 1.5 million members from the real estate industry and the settlement has been achieved to provide a clear, transparent, and flexible path for the industry. 

Announcing the settlement, the NAR has agreed to pay $418 million to resolve the accusations against them. 

Additionally, as part of the agreed settlement, the NAR will put in place a new set of rules and regulations for agents, brokers, and realtors who are a part of the association. 

Listed below are some of the new rules that will be enforced by the NAR from July onwards: 

• The agents and brokers will no longer be allowed to list their commissions as part of any property listings on the Multiple Listings Services. 
• Buyers are no longer required to pay commissions based on the old, fixed structure which was set between 5 to 6 percent of the final market value of the property.
• Buyers can decide to negotiate the commission rate for their agents and the agents have to sign an upfront agreement detailing the costs and fees in transparency. 

Industry experts believe that these are significant changes that will impact the workings of the industry in the immediate and long term. 

What exactly is the lawsuit about

Members of the NAR have long been following and practicing an established set of fixed commission structures which led to inflation in price. 

The high sales commission amount, generally varying between 5 to 6 percent of a property’s market value, was deemed as non-negotiable. 

This rigidity in the agent commission structure led to inflated prices for homebuyers, as the sellers tend to factor in the agent’s commission fees in the selling price of their property. 

The fixed commission structure also means that agents no longer had to compete against each other or improve the bar of their services and offerings. Hence, a lack of competition turned into no competition among real estate professionals. 

The lawsuit also complained against the fact that over many years, real estate agents have been incentivized to nudge buyers towards listings where they can make a higher commission. 

Since this practice has been going on since the 90s, many homeowners and buyers have been paying inflated prices while settling for little to no competition in the market. 

Consumers have been on the receiving end of the equation and have suffered financial losses due to the rules of the NAR and its associated member groups. 

What are the main changes in the real estate market?

The agreement between the National Association of Realtors (NAR) and the US Department of Justice has heralded a new era in the real estate industry of the country. 

This landmark decision is going to dramatically affect the way people buy and sell real estate. It is essentially going to turn around the current model of homebuying, listings, and agent commissions. 

Firstly, agents and brokers will no longer charge commissions based on a fixed model. 

Instead, the buyer will gain the flexibility to negotiate the commission rate as per the broker’s experience, skill, and quality of services. 

Secondly, any property seller will no longer be allowed to display the commission rate while listing their home for sale on the MLS (Multiple Listing Services). 

This way, brokers will not be able to pre-determine their potential commission earnings associated with the sale/purchase. 

Thirdly, home buyers will be encouraged to get into a legal contract that outlines their agent’s exact commission, fees, and services clearly. Agents will be required to sign the mandatory Buyer’s Representation Agreement which will include all the important details of the trade. 

How is the NAR agreement going to affect real estate professionals?

Many estimates and forecasts are pointing out that towards the end of an era dominated by industry professionals and a transition into one where consumers gain more control and flexibility. 

The NAR agreement will effectively end the current set of rules, practices, and structures that favored the agents and brokers while keeping real estate buyers on the receiving end. 

By most industry estimates, the real estate market could see an immediate impact on the total commissions earned. 

Experts believe that in the short term, agent and broker commissions may see a steep decline of anywhere from 25 to 50%.

Going by the industry forecasts, the NAR settlement might result in the wiping out of roughly $100 million in sales commissions paid to agents and brokers. 

On the other hand, if the broker commissions are impacted significantly, it could result in implications for the brokerage firm and companies as well. 

Some experts predict a reduction in marketing and advertising budgets along with a sizable decrease in the number of agents participating in the market. 

The NAR settlement is also going to affect housing prices, as some experts believe. 

As the new set of industry rules, guidelines, and practices are set to go into effect mid-July, it is anticipated that the housing market will see a steep decline in selling prices. 

The market is going to correct itself and reverse the continuing trend of rising home prices. 

This change can be attributed to the removal of the fixed commission structure which led to inflated prices and higher commission rates for brokers. 

What are the implications of the NAR agreement going to affect real estate professionals?

For members of the National Association of Realtors (NAR), the settlement decision feels like a bomb just went off and nobody knows what lies after the storm settles. 

However, if industry experts and leaders are to be believed, once the new rules and regulations come into force, it will take longer than usual for real estate professionals to bounce back from the aftermath. 

Seller-paid commissions will no longer be the cherry on the cake for buyer agents as they will have to find new ways to advertise the buyer agent’s commission. 

Agents will no longer be content with doing the bare minimum to get their share of the pie. 

Commissions will require negotiations and will no longer be predetermined or baked into the selling price of a property. 

Overall, it could be difficult for agents and brokers to adapt to the new rules, regulations, and modus operandi. To bounce back to the pre-settlement level of agent commissions, NAR members must reinvent themselves and their approach to participating in the real estate market. 

From a competition point of view, agents and brokers will have to face more competition in terms of earning commissions. As buyers gain more control and flexibility, they are more likely to choose low-cost and lower-commission options to meet their needs. 

Put simply, if you are an experienced real estate broker, you can still charge a higher commission to make up for your skill and knowledge. However, newly licensed agents might have to cut down their expectations to meet the needs of price-conscious home buyers. 

Some experts say that the average commission rate could reach as low as 2 to 3 percent of the final selling price of a property. This means that agents and brokers can expect around 40 to 60 percent reductions in their net earnings in the short term. 

This could result in many agents and brokers leaving the industry altogether, with experts suggesting that the figure could be around 60 to 80 percent of the 1.5 million NAR members. 

Overall, the NAR settlement has the potential to reform the industry and it is a must for agents and brokers to stay vigilant about the changes. 

As consumers become more aware of their rights and benefits, they will expect more from agents, especially the ones charging a high commission.  

However, many experts believe that despite the new rules and commission regulations, it is likely going to take a lot more years for the market to change the current order of the business.

Remember change is the nature of the industry and nothing stays permanent. If you can adapt with the changing times, you will be ready to transform your real estate career.