Table of Contents
- The NAR Settlement
- The NAR Settlement and Antitrust Law
- What Does the NAR Settlement Mean Practically?
- AgentUp Is Here to Help You Weather the Transitions
Disclaimer: This article is not intended to provide legal or professional advice. You should discuss all legal and professional issues with your managing broker, local real estate board, and/or an attorney.
Last week’s NAR (National Association of Realtors) legal settlement has dominated the news and conversation within the real estate industry.
Besides the buzz, there has also been much confusion and misinformation concerning the settlement and what it means for the real estate industry.
This article will explain the likely impact of the NAR settlement and what real estate professionals need to know.
But first, let’s get an overview of the NAR settlement and the lawsuit behind it.
The NAR Settlement
NAR is the primary trade and professional association for the real estate industry. With over 1.5 million members, it promotes, regulates, and studies the real estate market nationwide.
An antitrust lawsuit (Burnett v. National Association of Realtors et al.) from fall 2023 involved how real estate brokerage commissions are negotiated and structured.
Last October, the jury sided with the plaintiffs, agreeing that NAR and several large brokerages engaged in price fixing and conspired to inflate seller commissions.
The lawsuits challenge NAR’s cooperative compensation rule, which encourages home sellers to make offers of cooperative compensation” to buyer’s agents.
In other words, to entice buyers and their agents, sellers routinely offered to pay the buyer’s agent’s commissions as part of the overall sale.
These cooperative compensation terms were published on the MLS (Multiple Listing Service), a national network of regional databases that brokers and agents use to alert and talk to one another about sales.
On March 19, 2024, NAR announced a settlement that would end litigation of claims brought on behalf of home sellers related to broker commissions.
Under the settlement, NAR would pay $418 million over approximately four years and change how it structures and negotiates commissions.
While the settlement will likely change certain business practices, it’s crucial to note that the changes will be an evolution rather than a revolution.
How so? Let’s now turn our attention to the issue of antitrust, which is at the heart of the lawsuit.
The NAR Settlement and Antitrust Law
Trust is another word for monopoly. A monopoly is a business with undue market control regarding the supply and price of a particular good and service.
Monopolies hurt consumers and the businesses themselves in the long run. Therefore, we have Federal and State antitrust laws to prevent and break up monopolies.
Let’s take a closer look at the antitrust issues at the center of the lawsuit.
1. Real Estate Sales Commissions & Antitrust
Since the early 1980s, It has been standard real estate practice for home sellers to offer compensation to the buyer’s agent in the form of a commission.
Offering this commission motivates buyer’s agents to bring their buyers to help sell the home.
Additionally, sellers offered commissions because buyers don’t typically have a large enough budget to cover their own real estate agent fees, down payment, and closing costs.
In most markets, commissions range from 4-6% of the sales price. This is, and always has been, negotiable. The commission agreed upon by the seller and their agent has traditionally been split between the seller’s agent/broker and the buyer’s agent/broker.
In last fall’s lawsuit, the real estate industry was accused of violating antitrust law by limiting the buyers’ ability to negotiate the levels of the commissions they indirectly pay. This was seen as a form of price fixing, which is prohibited under antitrust measures.
In October, the jury for the case agreed with the plaintiffs and found that current commission structures and practices were a form of price fixing and led to an artificial inflation of commission rates.
The jury awarded $1.8 billion in damages and required changes to how commissions would be negotiated going forward.
While the details have yet to be worked out, we appear to be transitioning to a structure where each agent’s commission is distinct and not inherently linked and where both the seller and the buyer will be part of the negotiations.
2. The NAR Settlement & Buyers Agency
There is a diversity of practices across the industry regarding how salespersons work with buyers.
In some regional markets, real estate sales professionals do not contract with the buyers but instead act as the seller’s sub-agents and place their commissions in the purchase agreement.
This means the licensed salesperson has no formal agency standing with the buyer. In such a scenario, most salespersons need not explain in detail what value they offer the buyer nor have to negotiate compensation with them.
However, some regional markets practice buyer’s agency. In these situations, the buyer and salesperson sign a buyer’s agency contract, formally establishing the agency. This practice requires explaining and engaging in negotiations concerning agent compensation.
It appears that going forward, as part of the settlement, NAR has agreed to require MLS participants working with buyers to enter into written agreements with them and explain compensation arrangements.
The most significant change here is that real estate salespersons will now need to explain their value propositions to all of their buyers and enter into a contract with them, something many agents are not accustomed to doing.
3. The NAR Settlement & Commission Negotiations
As we explained earlier, most real estate sales have the seller set aside funds for both agents’ commissions. Therefore, there hasn’t been a need to negotiate compensation when working with buyers.
That looks likely to change. Sales agents are trained and experienced in explaining their value to sellers. Now, sales agents must learn to do the same with buyers.
Unfortunately, many agents try to make home sales look easy. We’ve enticed sellers to work with us because we handle all the details, and the same message has often been conveyed to buyers as well.
The problem is that the public doesn’t fully understand the value an experienced agent brings to any transaction.
As a result, many sellers think agents just enter the property details on the MLS and collect a fat paycheck. And many buyers think agents just show them a few houses and, again, collect a fat paycheck.
As it has done for years, NAR continues to encourage its members to help clients understand the full and specific value agents provide and what fair compensation rates are for such services.
The coming changes will mean, more than ever, that all agents will have to learn how to clearly show the value they bring to any sale and differentiate their services from those of other agents.
Such value and service conversations will be a significant part of negotiating agent compensation with sellers and buyers.
Let’s look at what these changes will mean in practice.
What Does the NAR Settlement Mean Practically?
In practical terms, let’s summarize what the NAR settlement will mean for agents, sellers, and buyers.
1. The Need for Written Buyers Agency Agreements
Some regional real estate associations have insisted on signing exclusive representation agreements between buyers and agents.
As a result of the NAR settlement, it looks as if this agreement will need to be signed in all cases and before showing a single property. Further, the agreement must clearly explain the compensation agreed upon between the agent and buyer.
Your region may already have a Buyer Representation Agreement in place. For those who don’t, expect that to be implemented soon. For those who do, some revisions may be needed to clarify the compensation structure.
2. Agent Compensation Will No Longer be Published on the MLS
Currently, the buyer’s agent compensation for any listing is entered in a designated MLS field viewable only by the agents.
This means that nearly every MLS listing states how much of the sales price a salesperson would earn by bringing and representing the buyer.
This information will no longer be published on the MLS as part of the NAR settlement. This rule change allows buyers to negotiate the buyer’s agent fee directly with their agent.
It’s important to note that sellers can still help buyers with the commission expense, but this offer cannot be communicated using the MLS.
3. The Need to Negotiate Compensation With the Buyer
The above changes will require real estate salespersons to discuss compensation and commissions with buyers and, if not outright, negotiate them.
This is not something that all sales agents are used to doing. Further, many real estate professionals wonder if these changes will result in a cut in their compensation.
So, are current commission rates going to drop? Time will tell.
However, despite the NAR settlement, the seller can still pay for the buyer’s agent via other means or as a concession.
Therefore, it is still possible to negotiate all the commissions with your seller or have the commission treated as a concession to the buyer to cover their buyer’s agent costs.
As with any other concession, the purchase agreement would need to include this information to make the concession a contract term.
4. The NAR Settlement – The Bottom Line
Remember, the settlement is not final and is still subject to court approval. Nothing will change until at least mid-July 2024. Further, NAR continues to deny any wrongdoing.
Also, keep in mind that media coverage tends to magnify the significance of events like this.
The news media often garners their attention by peddling fear. Many news stories are and will make it sound like the real estate industry is being punished or will collapse due to the lawsuit.
But here’s the truth — the NAR settlement will bring about changes that will offer opportunities for growth and innovation for us and our clients.
Like other industries, real estate has often faced disruption. Consider all the challenges our industry has successfully dealt with before:
- In the 1990s, we were told the Internet would replace real estate agents
- We survived the housing market collapse of 2008
- Also, big data and aggregate companies like Zillow haven’t pushed us out of business
Today, we face the challenge of likely changes to our compensation structures and having to negotiate contractual relations with our buyers. We have successfully adapted to change before, and we’ll do it again.
AgentUp Is Here to Help You Weather the Transitions
Change is never easy, but AgentUp is here to help.
Due to the NAR settlement, real estate sales professionals will need to adjust how they do business in the following ways:
- Develop sharper negotiation skills
- Offer a robust defense of the value they bring
- Bring clarity to increasingly complex compensation discussions
The primary challenge facing agents will be differentiating themselves by offering top-notch services and marketing products, showing the value they provide any sale, and justifying their commissions from buyers and sellers.
AgentUp can help you stand out from the competition and impress your buyers and sellers by helping you improve your marketing and sales efforts.
Take a look at the high-quality services and solutions we offer at extremely affordable prices:
- Real estate photo editing
- Transaction coordination services
- Real estate assistants
- Virtual staging
- Virtual tours
- Single property websites
- Custom house portraits
So, explore how AgentUp can become your real estate marketing partner.
Sign up for a free AgentUp account and check out all we offer to grow your business while complying with the changes ahead.
Thank you for taking the time to read this article. We hope it helped you better understand the impact of the NAR settlement and what real estate professionals need to know. You might also want to check out these other valuable resources:
