NAR Settlement FAQ Unraveled 🤓

Today, I’m spilling the REAL “T” around the Real Estate NAR Settlement Agreement, a complex topic that’s vital for anyone in the real estate sphere to understand. It’s a sad fact that “not all agents are created equal” —and, frankly, not all of them aim to be. And this is the unfortunate origin story of this lawsuit. Traditionally, Sellers have customarily compensated both their own fiduciary agent (the Listing Agent) and the Buyer’s agent — and for good reason. In order to sell your home for the most amount of money — it is essential to MARKET that home to ‘true buyers’ represented and guided by their professional buyer’s agent. You can’t see this more clearly then when you examine statistics on FOR SALE BY OWNER. In 2023 the Median Sale price of a FSBO (For Sale by Owner) was $310,000 and the Median price of Homes sold by Realtors was $405,000 — that’s $95,000 left on the table. Moreover, FSBO properties lingered on the market for over a year, on average, compared to just 78 days for those sold with the guidance of real estate professionals.

The crux of the controversy? Transparency. Many agents haven’t been clear that fees are negotiable, leading to the current lawsuit amidst a whirlwind of misinformation. It’s essential to understand that the proposal in question isn’t yet law and could change before its implementation.

For those of us committed to honesty and transparency, the proposed changes won’t significantly alter our practices. I’ve always promoted a tiered commission structure that recommends a higher commission compensation to the buyer’s agent to get maximum exposure and commitment once in escrow — a method that has consistently yielded results (an average of $109,000 over the asking price in my market). This strategy was explained, reviewed and then ultimately decided upon by the Seller (not me). I provide the data, my client makes the decision — and that’s what always should have been.

I’ve compiled an FAQ based on NAR’s FAQs, along with additional resources, including the full legal NAR proposal—see page 27 for the key proposed changes. Questions? Feel free to reach out. Remember, stay informed and keep navigating the real estate waters with confidence and a trusted professional by your side — we exist — I promise 🙏🏼

👉🏼 CLICK THE LINK FOR NAR SETTLEMENT RESOURCES 👈🏼

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What are the Origins of the NAR Settlement Case?

In Burnett v. NAR, a federal jury in Missouri ruled that the National Association of Realtors (NAR) and other real estate brokerages must pay nearly $1.8 billion for alleged inflation of home prices through mandatory commissions. Initiated in 2019 on behalf of 500,000 home sellers, the lawsuit claimed that NAR’s rules unfairly placed commission burdens on sellers, inflating rates for buyer agents. The defendants appealed the ruling, aiming for a reduction in the award and then a new class-action lawsuit emerged targeting major brokerages like Redfin and eXp challenging traditional industry commission practices. That brings us to the recent proposed settlement that is aiming to be ratified by the judge and put into practice by July 2024.

How does the settlement affect home sellers and home buyers?

The settlement ensures that consumers can still choose how they receive real estate services and how brokers are compensated. Should the proposed rules kicks in, listing brokers and sellers can still offer compensation for buyer broker services, but they can’t advertise it through the MLS. For those working with buyers through the MLS, they’ll need to have written agreements with their buyers before showing homes. These agreements clarify the services provided and their costs, helping consumers understand what they’re getting into. Something that many trusted professionals do now and should have done all along.

Why did NAR (National Association of Realtors) enter into this settlement?

From their perspective, since the legal troubles kicked off, they’ve been all hands on deck trying to make peace with the folks suing them. They really didn’t want their team feeling the pressure and were keen on paving a smooth road for the real estate world to thrive. They set their sights on two big wins: getting a legal “It’s all good” for as many of their people as possible and making sure customers still had a whole menu of real estate services and payment options to choose from. The deal they’ve come up with ticks both boxes, clearing the way for them to keep championing everyone’s right to own real estate and build wealth.

What are the key terms of the agreement?

From their point of view, they’ve managed to secure a deal that lifts the legal clouds for the National Association of Realtors (NAR), along with over a million of its members, loads of real estate associations, and numerous brokerages, as long as these brokerages’ sales didn’t zoom past $2 billion in 2022. They were really gunning to get this broad shield up to protect their folks from any backlash over the way commissions have been handled.

However, there’s a catch for agents under the HomeServices of America umbrella and a few others who are still tangled up in legal battles—they’re not covered by this cozy blanket of protection. But, the agreement throws a lifeline to the big-shot brokerages and some MLSs, giving them a shot at getting their own “get out of jail free” card if they want it.

On the rules front, they’re shaking things up by saying “no more” to listing commission offers on the MLS, pushing these talks off the platform to keep things more flexible. Plus, they’re making it a must for buyer’s agents to have their agreements in writing, starting from mid-July 2024.

And the price tag for peace? A cool $418 million over four years. Despite forking out this chunk of change, they’re standing their ground, saying they’ve done nothing wrong and sticking to their guns that their policies are a win-win for everyone looking to snag a piece of the American Dream, especially those counting their pennies for a home. They’re betting this settlement will let them keep on fighting the good fight for property ownership without upending the apple cart.

How will buyer brokers get paid now?

Sellers, buyers, and their brokers — have options for compensation. However, they’re changing the rules so that offers of compensation can’t be made through the MLS anymore. But don’t worry, consumers can still discuss compensation options with their real estate agents outside of the MLS through negotiation. The types of compensation for buyer brokers can vary, like fixed fees paid by consumers, concessions from sellers, or a portion of the listing broker’s pay. Negotiating compensation is still important and should always be done between agents and the people they’re helping.

What should listing brokers advise their clients about the prohibition of offers of compensation on an MLS?

Listing brokers need to let their clients know that they can’t advertise compensation offers on the MLS anymore. However, they can still negotiate compensation off the MLS, and sellers can still offer concessions like covering buyer closing costs. They emphasize that negotiating compensation is important and should always be done between agents and clients. They also stress the benefits of compensating the buyer’s agent, as it statistically leads to higher profits. They argue that it helps filter out non-serious buyers, and the additional compensation should be seen as a marketing cost to maximize exposure and ultimately achieve the highest return on investment.

How quickly do you expect the settlement to be reviewed and/or approved by the court?

The court review process is likely to take quite a while, potentially spanning several months or even longer. They believe there are solid reasons for the court to approve the settlement, primarily because it benefits all parties involved, including the members of the class affected by the case.

Does this mean buyers won’t have to use a buyer broker to purchase a property?

Consumers always have the choice to use a real estate professional or not. They stress the value of using a buyer broker, as research shows consumers benefit greatly from their services. They believe it’s crucial for buyer brokers to clearly communicate the services and value they provide. Going it alone without professional guidance exposes buyers to legal risks, potential buyer’s remorse, and the possibility of overpaying due to the fiduciary responsibility of a listing agent’s sole job to get their Seller the most money. In my opinion — any listing agent who offers to represent equally both a seller and a buyer is not being fully transparent or honest with themselves or their client — as the buyer wants the lowest price and the seller wants the hightest price and there is no manner in which to justly honor your commitments to both. I would heed with caution toward any Listing agent offering to fully represent both sides (dual agency) — again in my opinion — it is not possible nor ethnical. Lastly, without a buyer broker, it’s more likely to take longer to find the right home at the right price, ensuring a less stressful and regret-free home buying experience.