What the National Association of Realtors' settlement means for consumers and real estate brokers

What the National Association of Realtors' settlement means for consumers and real estate brokers

What the NAR settlement means for consumers and real estate brokers

A groundbreaking $418 million settlement announced Friday by the powerful National Association of Realtors is set to usher in the most sweeping reforms the American real estate market has seen in a century.

Here’s a look at how we got here, and what to expect in the months ahead.

NAR already lost a big case

For decades, the NAR has required home sale listing brokers to provide an offer of compensation to a buyer’s agent up front. The amount was always negotiable, and could be as low as $1. However, the industry standard usually comes out to 5-6%, split between a seller’s and buyer agent.

But that model has come under intensifying scrutiny. Late last year, a jury in a Kansas City federal court ruled against this longstanding practice, and awarded a massive $1.78 billion judgment against NAR.

What changes now for homebuyers and sellers

If NAR's settlement is approved by a federal court, Sellers will no longer be required to make a compensation proposal to prospective Buyers' agents, and will be prohibited from listing any compensation they do offer in the MLS.

Another new rule would see homebuyers having to sign an explicit deal with a broker before they start working with one. The new rules would kick in within months of approval, currently expected around mid-July.

What about the next few months?

Everyone involved in the market should expect “a certain amount of uncertainty for the coming months,” said Marty Green, principal at mortgage law firm Polunsky Beitel Green.

“The industry will be in transition as everyone digests the settlements and market forces begin working,” he predicted. 

Home buyers and their agents will need to decide on a commission and put it in writing. Sellers, likewise, will need to work carefully with their listing agents as the new rules come into effect.

Buyers could face more confusion

Holden Lewis, a home and mortgage expert at NerdWallet, warned of a potential negative trade-off: 

“Buyer-seller negotiations will become more complex, and buyers with plenty of cash might navigate the process more easily than buyers who don’t have a lot of savings,” he said. It could particularly affect first-time buyers with limited means to pay for an agent.

Brokers and agents have come out against the settlement, saying it will make the home-buying process more byzantine for consumers and discounts the important role agents play in helping them navigate it.

“I’m a full-service real estate agent, so when I go to list my client’s house, I align their goals with my goal, and that goal is selling for the highest amount possible,” said Roy Remick, a realtor based in Northern Virginia, who said he often pays thousands of dollars of his own for services to aid the sale process.

“This is ultimately someone saying, ‘You guys make too much money,’ which I don’t think is right for someone to dictate,” he said.

Buyers’ agents will be left “flying blind” since they won’t know how much they’ll end up making from a given home, Remick warned. “We’ll have to make a bunch of phone calls, because now we don’t know what [the commission] is because we can’t see it in the MLS."

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