What the NAR Settlement Is All About

By Ciprian Morariu Published: April 3, 2024

NAR Settlement Is All About

These days, our industry is changing fast. It's super important to keep up with what's happening and have the right tools to handle it all. The lawsuits by Sitzer/Burnett and Christopher Moehrl have shaken things up in our community. People are talking a lot about antitrust violations, commissions, and what's going to happen next for us as real estate professionals. These lawsuits are a big deal and they're going to have a big impact on real estate agents all across the country, not just now, but for a while to come.

This legal case was all about challenging the way real estate agents get paid in the U.S., known as the cooperative compensation system. A case was recently filed against the National Association of Realtors (NAR) and the jury decided that the mode of paying commission was not fair and amounted to cartelization. 

The jury further said that the commission rates were kept artificially high. The lawyer for the plaintiffs kept pointing out that in other countries, people pay way less in commissions, like only 2-3%, compared to the 5-6% that's typical here in the U.S.

What’s NAR?

The National Association of Realtors (NAR) is a trade association of real estate professionals. Any member of the NAR is called a realtor. They're all across the country and they work together to make sure real estate is done right. 

What are its core values?

The National Association of Realtors (NAR) has some important rules that its members must follow when they're working. These rules are like a guidebook for you should act:

  1. Be Honest: NAR members promise to tell the truth, treat people fairly, and do the right thing in all their deals.
  2. Be Professional: They promise to be good at their job, know a lot about real estate, and act like experts in their field.
  3. Speak Up: NAR stands up for rules and practices that help people buy and sell homes fairly, and they fight for the rights of both us real estate agents and the people buying homes.
  4. Be Part of the Community: NAR wants its members to get involved in their neighborhoods and do good things to help out.

These rules are the foundation of what NAR does. It wants to help real estate agents do their jobs well and make sure everyone is treated fairly.

What is NAR used for?

The key roles of the National Association of Realtors (NAR) are explained below in simple points:

  1. Setting Standards: NAR sets rules and guidelines for you real estate agents to follow when we're working. These rules help ensure that you treat people fairly and do your jobs well.
  2. Providing Education: NAR offers training and resources to help you learn more about your jobs and stay up-to-date on important information in the industry.
  3. Advocacy: NAR speaks up for you professionally and for the homeowners by advocating for laws and policies that support fair practices in buying and selling homes.
  4. Networking: NAR helps you to connect with each other so you can learn from one another, share ideas, and support each other in their work.
  5. Promoting Homeownership: NAR encourages people to buy homes by promoting the benefits of homeownership and providing information to help people make informed decisions about buying a home when they decide to.

Overall, this organization works to support you and promote fairness and professionalism in the real estate industry.

Now, 

What’s at the heart of this recent case against it?

The case revolved around one basic premise and that was whether commissions paid to buyers’ agents are intentionally kept high since sellers are required to pay compensation to the buyers’ brokers too. 

Who are the parties involved in the case?

Okay, so here's the deal: in this corner, we've got a bunch of Missouri homeowners like Rhonda Burnett, Jerod Breit, Jeremy Keel, Hollee Ellis, and Frances Harvey. They're the ones filing the lawsuit, and basically, they're saying, "Hey, something's not right in the real estate world, and we're here to shake things up.”

On the flip side, we've got the people being sued. These are big names in real estate like the National Association of Realtors (NAR), Keller Williams, and HomeServices of America. At first, RE/MAX and Anywhere Real Estate were also part of it, but they settled by agreeing to pay $138.5 million in total and promising to change how they pay buyer agents.

What is the actual truth?

Several analysts have given their version of the settlement. They say that real estate transactions now will be almost free, make homeownership affordable and consumers will be protected from cut-throat commissions. However, this line of thought is far from reality. The agreement does not have any of these impacts. It is all a facade!

Let us get to the truth right away.

1. “The settlement does not require brokers to reduce their compensation. This statement is false.”

There is no clause in the settlement that limits the fees that can be charged by realtors. The standard practice has been to decide the compensation after consultation with the stakeholders of the real estate transactions. As in almost all sectors, these fees depended and still do on the extent of services provided by the realtors. 

2. It is false that sellers no longer have to pay commissions to realtors who help to find buyers in the market. 

It's worth noting that sellers have never been obligated to pay buyer-agent compensation. However, it has been a practice that has worked well in the past. Previously, a realtor-owned MLS mandated payment of some compensation, even if it was a low $1. This clause no longer exists and now, MLS accepts all listings without taking buyers’ agents commission into consideration. 

3. The settlement does not require sellers to pay the commission of the buyers’ agents. This statement is false.

Presently, properties that offer buyers’ agents commission cannot be displayed on MLS owned by NAR. However, to sell faster, sellers can still pay commissions to buyers’ agents for their properties if they are not listed on the MLS. 

In cases where sellers do not want to pay commission to the buyers’ agents, a contingency clause can be included in the buyers’ offers that includes the costs of services. 

4. It is false that the settlement will lower the costs of homeownership and make it affordable. 

The prices of houses depend on how many are available and how many people want to buy them. When you buy or sell a house, you have to pay extra fees on top of the price outside the commission. The reason why prices of houses rise and fall is because of prevailing real estate market conditions and has nothing to do with the commissions payable. 

5. It is questionable that buyers will now be able to negotiate commissions payable to their agents after the settlement. 

If you've bought a home before, chances are you were glad the seller paid your agent, saving you money. This was some relief, what with having to pay the down payment and closing costs. 

6. The settlement will adequately compensate consumers who have been significantly affected by realtors in their real estate transactions. This statement is False.

If you divide the settlement money among all the consumers supposed to get compensation, each would get about $10. The main beneficiaries are the lawyers who asked the court for $80 million in fees. This is laughable at the least and a direct insult to those who were actually ‘harmed’. 

Key points about this case that you must know. 

  1. The judgment is only applicable in Missouri and since the National Association of Realtors (NAR) plans to appeal, we're not sure yet what the final result will be. Eventually, the case might land up in the Supreme Court and NAR is prepared for the long haul.  
  2. Again, it is expected that as the case moves forward and more legal luminaries such as appellate court judges and Supreme Court justices get involved, a different result might emerge. 
  3. The National Association of Realtors (NAR) says that buyers should not be afraid to use Buyer Agency Agreements to protect themselves. Don't be afraid to use them because being scared can cause legal problems. Be honest with your clients about how you get paid and your relationship with them. Tell them clearly what you're going to do for them and how much it'll cost. Better communication can stop arguments about commissions before they start.
  4. To clear up any confusion about commissions, we might start seeing rules that make it necessary to show how much money goes to each real estate agent in every deal across the country. Or, we might have to show the commissions paid to agents for each property, so everyone knows what's going on. This would make things more transparent in the real estate world.
  5. Try to remember that when things like this happen, the news often makes them seem bigger than they are. Right now, this ruling is just from a lower court, and there's still more legal stuff to go through. So, keep your attention on your work, on the people you know, and on staying calm. You as realtors are really good at rolling with the punches and adapting to change.