Understanding the NAR Commission Settlement's Impact on Real Estate
The recent settlement agreement by the National Association of Realtors (NAR) to address longstanding lawsuits challenges and the conventional mechanisms of real estate transactions, marking a significant shift in the industry's foundation. The lawsuits challenging real estate commissions have cast a shadow of uncertainty over the industry, heralding a wave of change. The judgement of the Sitzer | Burnett case, complemented by the flurry of similar "copycat" lawsuits, marks a critical juncture, compelling real estate professionals to reevaluate and adjust their approaches for the future.
Those included in the settlement are NAR, its over 1 million members, all state and local Realtor organizations, every multiple listing service owned by Realtor associations, and all brokerages with a NAR member as a principal, provided they had a residential transaction volume in 2022 of $2 billion or less. However, the agreement delineates exclusions, notably for members during any period they were affiliated with HomeServices of America, highlighting the nuanced legal and operational distinctions within the settlement’s scope. Additionally, MLSs not fully owned by Realtor organizations fall outside this agreement, although a path is offered for these entities to opt into the settlement's terms, suggesting a potential for broader industry adaptation through voluntary compliance and contribution to the settlement fund.
Financial implications for NAR and its members are a concern. While the settlement's financial burden is substantial, NAR has not indicated an immediate increase in member dues to cover the damages, providing a measure of financial stability for current members by maintaining dues for 2024 considering they were already paid.
The settlement calls for $418 million in damages paid over the next four years and several industry changes detailed below.
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Key NAR Settlement Proposals Set for July 2024 Implementation:
Redefining Buyer Broker Compensation: In a notable departure from tradition, NAR's settlement precludes listing agents from dictating buyer broker commissions. This promotes negotiations directly between buyers and their agents.
Reimagining Compensation Disclosure: Future regulations will eliminate the practice of displaying buyer broker compensation in MLS listings, opting instead for permissible buyer concessions. This adjustment aims to mitigate the potential bias in listings and promote a competitive landscape for buyer agent services. "The settlement expressly provides that sellers may communicate seller concessions — such as buyer closing costs — via the MLS provided that such concessions are not conditioned on the use of or payment to a buyer broker,” NAR said."
Buyer Broker Agreements: A groundbreaking component of the settlement mandates that buyer brokers must formalize their relationships with clients through written agreements before home tours.
Facilitating Direct Negotiations: The settlement encourages buyer brokers to directly negotiate their fees with clients, potentially incorporating fixed-fee commissions. See video from NAR Chief Legal Officer HERE
View NAR Settlement's Potential Impact on the Real Estate Industry - What Could Be Next?
To mitigate your risk in today's litigious real estate environment, consider the value of having a second set of eyes on every transaction file. With lawsuits increasingly prevalent within the industry, the importance of having a Transaction Coordinator has never been more critical.
Diving deeper into the repercussions of these landmark changes, it's crucial to draw upon existing knowledge and resources. For instance, Building Your Real Estate Empire Through Referrals: A Guide for Agents offers strategic insights for agents looking to adapt their business models in response to changing market dynamics.
In summary, the NAR commission settlement prosposal represents a significant evolution in real estate practices, prompting industry professionals to reevaluate their approaches to commission negotiation, client relationships, and service offerings. By staying informed and adaptable, agents can navigate this new landscape successfully, leveraging insights from related discussions and resources to enhance their professional trajectory in an evolving market environment.
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