NAR Settlement Effect On Buyers And Sellers

March 15, 2024, was a big day for buyers and sellers of real estate in the USA. The National Association of Realtors (NAR) suggested a big solution to finish a lawsuit happening across the country. This lawsuit says that NAR made realtor fees higher than they should be, which made home prices go up. The proposed solution is to pay $418 million to settle the lawsuit. If given the go-ahead by a federal judge, the commission structure of real estate professionals might change. 

First, let us go through a few definitions of the real estate industry

The functions of a real estate agent

Agents work with both buyers and sellers for a fee to make sure everything goes smoothly when the property is being bought or sold. 

The functions of a seller’s agent

A seller’s agent is like a champion for someone who wants to sell their home. These people are experts in getting a property ready to sell and listing it on the market. 

The functions of a buyer’s agent

A buyer’s agent is like a trusted advisor for people who are looking to buy a home. They are experts in their field of work. They understand what buyers want and what they can afford. 

The functions of a real estate broker

Brokers are real estate agents with years of experience behind them. They are authorized to start brokerage firms and have other agents working for them. Their earnings are from commissions on real estate deals. 

The functions of a realtor

Realtors are real estate agents who are members of the National Association of Realtors. 

The National Association of Realtors (NAR)

The National Association of Realtors is a body with a membership consisting of real estate professionals only. These include real estate agents, brokers, property managers, appraisers, and more. With 1.5 million members, NAR is the largest trade association in the USA. 

The function of a Multiple Listing Service (MLS)

A Multiple Listing Service (MLS) is a database containing particulars of houses for sale. It helps real estate brokers share details about these properties with each other. The main idea is to connect sellers' agents with buyers' agents so they can find the right match for their clients. MLSs are organized by different areas, so there are lots of them across the country. They're mostly online, making it easy for agents to access and search for listings.

Details of the Lawsuit Against NAR 

The lawsuit against NAR is a big deal because it's about fairness in the real estate market. It seeks to address antitrust concerns and how MILS listings are managed. The Department of Justice claims that NAR has put in place certain rules, policies, and practices that its members have followed. These, according to the Department of Justice, have reduced competition among real estate brokers, which isn't good for people looking to buy homes in America. 

The main concerns of the lawsuit are: 

1. Publishing buyers’ agents’ commissions on NAR-run MLS databases

2. Letting buyer's agents make buyers believe that their help doesn't cost anything.

3. Giving buyer's agents the power to pick and choose which homes they show buyers based on how much money they'll make from the sale, leaving out homes with lower commissions.

These rules have allegedly made it harder for real estate agents to compete with each other, and that's not good for people trying to buy homes. The lawsuit is trying to make sure that everyone has a fair chance when it comes to buying or selling property.

The Terms of the NAR Settlement 

1. NAR-operated MLS databases are prohibited from publishing the rate of buyers’ agents’ commission. 
2. Buyers must enter into a separate contract with their agents about the quantum of commissions payable. 

The NAR settlement brings changes for both buyers and sellers in the future. How?

The commission payable on a real estate deal is typically about 5-6 percent of the sale price and divided among the buyer’s and the seller’s agents. This split is usually equal, but it can change depending on the deal. Normally, you don't pay your agent directly—it's the seller's job, and the money comes from selling the house. 

If the changes happen, you'll need to pick a buyer's agent and agree on their pay upfront. You'll still pay the seller for the home, and the seller will still pay their agent. But the commission split might not be 50/50 anymore. Instead, you might pay your agent directly based on what you agreed to.

Remember, you can still talk about commissions. The seller might agree to pay some or all of your agent's fees. But NAR's MLS won't show what the seller's offering anymore.

What Are the Pros and Cons of this to both buyers and sellers?

For Buyers

Pros:

1. Buyers sign an agreement directly with the agent about the amount of commission to be paid after negotiating the terms of the real estate transaction. 
2. They can still ask the seller to cover some or all the agent's fees.

Cons:

They can't include their agent's fees in their mortgage and need to pay their agents directly. The drawback here is that buyers come under additional financial as this expense is now out-of-pocket and not a part of the mortgage which is payable over several years. 

For Sellers

Pros:

1. Sellers get more for their homes as they have to pay their agents’ commission only and not the buyer’s agent’s compensation. Sellers though can choose to voluntarily pay a part of the buyer’s agent’s commission to sweeten the deal. 
2. Sellers can lower their listing price to the extent of the buyer’s agent’s commission that would otherwise have to be paid. This will get their houses off the market faster. 

Cons:

1. Seller's agents can't publish on the MLS the buyer’s agent’s commission offered. They'll have to talk about it for each sale, which could make it harder to find buyers or take longer to sell.

You must by now know the effects of the suggested NAR settlement that are intricate. This means that if given the go-ahead by a federal judge, the updated conditions will offer greater clarity to buyers and enhance their ability to negotiate with their buyer’s agents.

Will these changes lead to monetary benefits for buyers and sellers?

1. NAR has emphasized that the changed rules including the MLS Model Rule will not change things for buyers or sellers and will not make homeownership more expensive. 

2. Sellers can still offer compensation to the buyers’ agents but this amount cannot be published on NAR-run MLS databases. 

How does the settlement affect home sellers and home buyers?

1. This agreement will keep options open for consumers when it comes to real estate services and payments.
2. Sellers and listing brokers can still offer commissions to buyer’s agents without putting the figure on the MLS database. 
3. Buyers have to enter into a written contract with their agents about the commission payable before they will be taken on showings. 

Wasn't putting compensation offers on the MLS meant to make things clear? Doesn't taking them off the MLS reduce clarity and transparency?

NAR is still committed to making the marketplace transparent. They want to make sure consumers get full, fair, and clear property information, and that they can afford professional help in their transactions.

Won’t stopping offers of payment on the MLS cause fairness problems in housing?

1. This agreement lets people decide if they want payment when buying or selling a home.
2. NAR still thinks payment offers make it easier for people to get professional help, lower costs for buyers, create more chances for fair housing, and bring more buyers to sellers.
3. The agreement doesn't change the rules NAR members follow to do right by their clients.
4. REALTORS always have to look out for their clients and treat everyone in a deal fairly.
5. NAR members will keep using their skills to protect their clients' interests.

If you’re a realtor, you come under these rules unless you work for the following companies. 

1. At World Properties, LLC; Compass, Inc.; Douglas Elliman, Inc.; Douglas Elliman Realty, LLC; eXp Realty, LLC; eXp World Holdings, Inc.; Hanna Holdings, Inc.; HomeSmart International, LLC; Howard Hanna Real Estate Services; Keller Williams Realty, Inc.; Real Broker, LLC; The Real Brokerage, Inc.; Realogy Holdings Corp.; Realty ONE Group, Inc.; Redfin Corporation; RE/MAX, LLC; United Real Estate; or Weichert, Realtors®
2. HomeServices of America or its partners.