NAR Realtor Commission Lawsuit Explained

1. Executive Summary of the NAR Realtors’ Lawsuit Settlement

Following the silly allegations of unfair real estate agent commissions, a significant lawsuit was filed against the National Association of Realtors (NAR) along with other real estate companies. The main accusation linked NAR to inflating home prices through standard commission practices (this is a completely ridiculous claim). The lawsuit’s settlement will abolish the traditional 5%-6% commission rate (some actually see this increasing commission rates), leading to five major changes to the real estate industry pending court approval:

  1. Compensation offers will no longer be listed or advertised on the MLS.
  2. Written agreements will be required for MLS participants representing buyers prior to viewing a property).
  3. NAR will pay a $418 million settlement over approximately four years.
  4. NAR and its members will be released from liability.
  5. NAR maintains its stance of denying any wrongdoing. (commissions have always been negotiable)

2. Potential Implications of the NAR Lawsuit Verdict

The settlement could transform the real estate market by creating opportunities for new business models and enhancing market competitiveness. Others that so this for a living (not lawyers and lawmakers that have never sold a home) Key implications include:

  • Reduced Realtor Commissions: Both buyer and seller commissions are expected to decrease. (some people do not see this happening)
  • Impact on House Prices: Lower commissions may eventually influence home values, though not necessarily reduce them.
  • Industry Shifts: Many agents might leave the industry due to decreased commissions and the slowing of the market due to many buyers just giving up.
  • Increased Listings: Lower commissions could encourage more homeowners to sell, impacting market supply and dynamics. Although many of us know that this has never been an issue. The reason inventory may increase is due to 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 may have problems.

However, it’s important to note that falling commissions do not guarantee lower home prices. Often, reduced costs result in higher profits for sellers rather than lower prices for buyers. Interest rates will still play a crucial role in the housing market’s dynamics.

3. Protecting Buyer Interests Post-Settlement

With potential changes to the buyer’s agency role, seller’s agents will need to step up to ensure buyers are well-informed and confident throughout the home buying process. Builders should ensure their community managers or new home sales agents are licensed and prepared to fully represent both builders and buyers.

4. Payment for Buyer’s Agents Post-Settlement

Buyers will likely need to pay out of pocket for their real estate agents, impacting their available funds for down payments and fees. Potential payment structures include:

  • Flat fees
  • Percentage of the sales price
  • Hourly rates
  • Skipping broker representation altogether

Despite these changes, sellers might still negotiate to cover the buyer agent’s fee within the overall deal terms.

5. Timeline for Settlement Effects

The settlement could take effect as early as mid-August 2024, but significant changes will not happen overnight. The real estate market will gradually adapt to a more competitive environment, with some resistance and initial adjustments expected.

6. Beneficiaries of the Settlement Decision

Home sellers and builders stand to gain the most from the settlement, as they can retain more proceeds from sales. Online and discount real estate brokerages may also benefit by offering lower commission rates and greater service flexibility to buyers.

7. Impact on Commissions

Most experts predict a decrease in commissions, particularly on the buyer’s side. Seller-side commissions might gain importance as sellers and builders seek to attract and convert buyers. The exact impact on commissions will unfold over time.

8. Changes to Home Builder Co-op Rates

There are arguments for both increases and decreases in co-op rates:

  • Decrease: The availability of online information and virtual home tours may reduce the need for traditional agent involvement.
  • Increase: Many buyers still prefer having an advisor to guide them through transactions, maintaining or even raising co-op rates.

9. Effect on Non-NAR MLS Databases

Other MLS databases are monitoring the NAR litigation and may make necessary adjustments. Although these databases are not directly involved, they are prepared to respond to changes with advance notice to members.

10. Builder Actions in Response to the Ruling

Builders should educate their sales teams to address buyer and Realtor concerns effectively. Fostering strong relationships and providing comprehensive customer experiences will be crucial. Builders who prioritize buyer education and care will excel in the evolving market.

11. Impact on Real Estate Technology and Innovation

The settlement is likely to spur technological advancements in real estate. Technology-driven platforms offering low-cost, efficient alternatives for buying and selling homes will gain traction. Tools like virtual tours, online transaction management, and AI-driven customer service could become more widespread, enhancing the real estate experience.

12. Training and Development for Real Estate Agents

As the industry adapts to competitive commission structures and fewer agents, there will be a heightened focus on training and development. Agents will need to improve their skills in negotiation, digital marketing, and customer service. Builders and brokerages may invest more in ongoing education programs to ensure their teams are well-prepared for the new market landscape.


FAQ

How will the NAR settlement affect real estate commissions?
The settlement is expected to reduce both buyer and seller commissions over time, particularly on the buyer’s side. Seller-side commissions might become more important for attracting and converting buyers.

What should home builders do in response to the NAR lawsuit settlement?
Home builders should educate their sales teams about the changes, focus on fostering strong buyer relationships, and provide a comprehensive and informative customer experience from the initial inquiry to closing.

Will buyers have to pay for their real estate agents out of pocket?
MAYBE, following the settlement, buyers may need to pay their agents directly through flat fees, percentages of the sales price, hourly rates, or opt out of broker representation entirely.

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Jenny Baghaen

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