NAR Realtor Commission Lawsuit Explained
July 9, 2024 (updated July 17, 2024) By Jenny Baghaen
1. NAR Realtors’ Lawsuit Settlement Summary
So the silly real estate agent commission lawsuits have been filed against the National Association of Realtors (NAR) and other real estate companies. NAR was accused of inflating home prices through standard commission practices (ridiculous). The settlement will get rid of the 5%-6% commission rate (some think this means higher commission rates), here are five changes to the real estate industry pending court approval:
- Compensation will no longer be listed or advertised on the MLS.
- Written agreements will be required for MLS participants representing buyers before showing a property).
- NAR will pay $418 million over 4 years.
- NAR and its members will be released from liability.
- NAR denies any wrongdoing (commissions have always been negotiable)
2. NAR Lawsuit Verdict Implications
The settlement could change the real estate industry and create new business models and competition. Others that know this for a living (not lawyers and lawmakers that have never sold a home) Here are some of the implications:
- Lower Realtor Commissions (is what they are trying to acomplish): Both buyer and seller commissions will go down (some don’t think so)
- Impact on House Prices: Lower commissions will eventually impact home values but not necessarily lower them. (again that is what they THINK will happen)
- Industry Changes: Many agents will leave the industry due to lower commissions and the market slowing down because many buyers will just give up.
- More Listings: Lower commissions will encourage more homeowners to sell, impact the market supply and dynamics. Although we all know this has never been an issue. The reason inventory will increase is because of the type of agents you may end up with. If you pay real estate agents minimum wage to help you buy or sell your largest investment you will have problems.
But remember, lower commissions don’t mean lower home prices. Often times reduced costs mean higher profits for sellers not lower prices for buyers. Interest rates will still be the wild card in the housing market.
3. Protecting Buyer Interests Post Settlement
With the changes to the buyer’s agency, seller’s agents will need to step up to make sure buyers are informed and confident throughout the home buying process. Builders should make sure their community managers or new home sales agents are licensed and prepared to represent both builders and buyers.
https://www.youtube.com/watch?v=SfCehV3tUGA
4. Payment for Buyer’s Agents Post Settlement
Buyers will have to pay out of pocket for their real estate agents, impacting their down payment and fee funds. Here are the potential payment structures:
- Flat fees
- Percentage of the sales price
- Hourly rates
- No broker representation
Sellers may still negotiate to pay the buyer agent’s fee within the overall deal terms.
5. Timeline for Settlement
Settlement could happen as early as mid August 2024 but changes won’t happen overnight. The real estate market will adjust to the new competitive environment, some resistance and initial adjustments expected.
6. Winners of the Settlement
Home sellers and builders will get the most from the settlement as they will keep more of the proceeds. Online and discount real estate brokerages will benefit by offering lower commission rates and more flexibility to buyers.
7. Commissions
Most expect commissions to go down, especially on the buyer’s side. Seller’s side commissions will become more important as sellers and builders try to attract and convert buyers. We will see how it plays out.
8. Home Builder Co-op Rates
There are arguments for both increases and decreases:
- Decrease: With online information and virtual tours, there’s less need for traditional agent involvement.
- Increase: Many buyers still want an advisor to guide them through the process, co-op rates may stay the same or even go up.
9. Non-NAR MLS Databases
Other MLS databases are watching the NAR lawsuit and will make adjustments if necessary. Although not directly involved, they will give advance notice to their members if changes happen.
10. Builder Actions
Builders should train their sales teams to address buyer and Realtor concerns. Building strong relationships and providing a full customer experience will be key. Builders who focus on buyer education and care will win in the new market.
11. Real Estate Technology and Innovation
The settlement will drive technology in real estate. Technology driven platforms offering low cost, efficient ways to buy and sell homes will gain momentum. Tools like virtual tours, online transaction management and AI driven customer service will become more mainstream, making the real estate experience better.
12. Agent Training and Development
As the industry moves to competitive commission structures and fewer agents, training and development will be more important. Agents will need to upskill in negotiation, digital marketing and customer service. Builders and brokerages will invest more in ongoing education programs to make sure their teams are ready for the new landscape.
FAQ
How will the NAR settlement affect commissions?
It will reduce both buyer and seller commissions over time, especially on the buyer’s side. Seller’s side commissions will become more important to attract and convert buyers.
What should home builders do about the NAR lawsuit settlement?
Home builders should educate their sales teams, build strong buyer relationships and provide a full and informative customer experience from inquiry to close.
Will buyers have to pay their real estate agents out of pocket?
MAYBE, following the settlement, buyers may pay their agents directly through flat fees, percentage of sales price, hourly rates or opt out of broker representation altogether.
Jenny Baghaen
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