How the new NAR settlement real estate rules will work
Decoupling of Commissions and Changes in Real Estate Industry
NAR Lawsuit settlement 2024 - Brian Icenhower breaks down the impacts of the National Association of REALTORS on real estate agents. The video discusses the recent settlement reached by the National Association of Realtors (NAR) regarding alleged price-fixing practices. According to the speaker, Brian Eisenhower, the settlement will decouple commissions, eliminating automatic offers of compensation in MLS. This change will require agents to negotiate commissions on a per-transaction basis, much like the commercial real estate industry. The speaker emphasizes the need for agents to explain this change to clients, as well as the importance of securing buyer agency agreements to ensure commissions are paid. The video also notes that the settlement may lead to a decrease in MLS influence and an increase in pocket listings, potentially shifting the balance of power in the real estate industry.
Summary
Here are some key points about the NAR settlement:
1) A settlement was reached in 2024 regarding the National Association of Realtors (NAR) lawsuit over alleged price-fixing practices.
2) Major changes from the settlement:
a) Decoupling of commissions: Eliminating automatic offers of compensation in MLS listings
b) Requirement for buyers to sign contracts with agents before viewing properties
c) Ban on advertising buyer agent commissions in MLS listings
3) Implementation timeline:
a) Changes to take effect by August 17, 2024, with some regions implementing earlier
b) Final court approval hearing scheduled for November 26, 2024
4) Potential impacts:
a) Buyers responsible for paying their own agent commissions, but can negotiate with sellers to cover costs
b) Possible decrease in overall commission rates
c) New compensation structures may emerge (flat-fee, hourly, à la carte services)
d) Increased importance of buyer representation agreements
e) Potential shift in MLS influence and rise in pocket listings
5) Ongoing scrutiny:
a) Department of Justice (DOJ) continues to investigate industry practices
b) Concerns about possible loopholes in new rules
6) Consumer considerations:
a) Buyers may need to sign agreements even for open houses
b) Importance of understanding new contracts and negotiating commissions
c) Potential for more flexibility in choosing and paying for specific real estate services
7) Industry adaptation:
a) Real estate companies and associations developing new forms and agreements
b) Debate over best practices and interpretations of new rules
The settlement represents a significant change in how real estate transactions are conducted, potentially leading to more negotiation in commissions and a shift in how buyers and sellers interact with agents.
How will new real estate rules work? Your questions answered – San Diego Union-Tribune
Starting on Aug. 13, most Southern California home shoppers will need to sign contracts with agents to view properties for sale, binding them to paying their own commissions if they can’t get a seller to cover it.
And home sellers will be banned from advertising how much they’re willing to pay buyers’ agents in a multiple listing service, or MLS.
Those are the two most clear-cut changes happening under a nationwide real estate settlement.
Agents and consumers say, however, there still are many questions about how the nitty-gritty details of the settlement will apply in the future.
How will buyer’s agents get paid? Will the cost of buying a home — already devastatingly unaffordable — go up even more? Do you have to sign something to see an open house? What’s in the new agreement home shoppers must sign?
Here are some questions and answers about the settlement and what’s changing.
Q: What is the NAR settlement?
A: A proposed deal will resolve a $1.8 billion class-action verdict against the National Association of Realtors.
The terms of the deal apply nationwide and affect every homebuyer and seller who works with a licensed real estate broker who is a “participant” in an MLS that’s part of the settlement.
Q: How did the settlement come about?
A: Home sellers filed several class-action lawsuits seeking to end rules that required seller agents to post “offers of compensation” in the MLS, spelling out how much commission the seller would pay a buyer’s agent. The lawsuits maintained the practice violated antitrust laws and kept U.S. commission rates artificially high.
While Realtors maintain commissions have always been negotiable, the average rate has remained in the 5 percent to 6 percent range for years (or $38,000 to $46,000 for a median-priced Southern California home).
Q: How will things change under the settlement?
A: Two key changes are required.
NAR will ban “offers of compensation” to buyer’s agents in an MLS.
Such offers still can be made by other means, just not in the MLS. For example, real estate companies can (and likely will) post them on their websites, social media sites and in their marketing materials.
Second, all home buyers working with a licensed MLS member must sign a contract before that agent can begin showing them homes.
Those buyer-representation agreements would bind the buyer to paying their own broker’s fees, although they still could ask sellers to pay them during purchase negotiations.
The net effect of those two changes could evolve over time.
Q: How will it really work? How will buyer’s agents get paid?
A: Technically, buyer’s will be responsible for paying their own commissions, and sellers will be responsible for paying theirs.
But buyers can (and likely will) request in their purchase offers that sellers pay the buyer’s commissions, agents say.
“The residential purchase agreement can be used to negotiate compensation from the seller to the buyer’s broker,” a Q&A from the California Association of Realtors’ legal team said. “The maximum amount that can be requested from the seller is the amount that buyer agreed to pay the buyer’s broker in the Buyer Representation and Broker Compensation Agreement.”
If a seller declines to pay the full amount specified in the buyer’s contract, the buyer will have to pay the balance — or consider buying a different home.
Agents already are urging sellers to pay “concessions” to cover buyers’ commissions, saying they’re needed if home shoppers are to consider their homes.
Q: When do these changes take effect?
A: A federal court hearing is scheduled on Nov. 26 for final approval.
But the two key practice changes must take effect by Aug. 17. And even earlier than that in Southern California.
The Big Bear MLS implemented changes on July 25. The new procedures will start Aug. 6 at the California Desert Association of Realtors MLS and on Aug. 7 at the Greater Antelope Valley Association of Realtors MLS.
The California Regional MLS, the nation’s largest listing service covering most of Southern California, will implement the new rules Aug 13.
Q: If I’m already working with an agent, will I have to sign a new agreement after Aug. 17?
A: Yes.
Buyer’s will need to sign a contract with agents they’re working with, and sellers may need to amend their listing agreement to make sure it complies with the settlement.
Q: How is the new payment system structured (i.e., flat-fee, hourly)?
A: Many new forms of compensation could evolve.
In addition to the traditional practice of basing commissions on a home’s sale price, other types of compensation could include flat fee payments or an à la carte menu covering services such as home tours, purchase offers, negotiations and so forth.
Q: Does the settlement mean the “standard 6%” commission rate is gone?
A: News reports flourished in the wake of the settlement announcement, predicting “the 6 percent commission is no more.”
Consumer advocates believe rates will fall once buyers start negotiating commissions directly with their agents.
However, nowhere in the 107-page settlement does it specify any commission rates.
Q: Do I have to sign something to attend an open house or tour a new development’s model homes? Do I need to sign paperwork before I contact the agent for a home listed in the MLS?
A: Probably.
Both NAR and CAR say in their Q&As that you don’t. The listing agent is working for the seller in these instances and no agreement is required, they say.
But unrepresented buyers should expect to sign something when showing up at an open house, several local agents said.
CAR has created an Open House and Non-Agency form for agents to use as “a risk-management tool.”
The form “makes it clear that the listing agent is solely working for the seller, and all communications are for the seller’s benefit,” CAR’s legal team said in an email.
“It’s not going to be like dress shopping anymore,” said Brentwood agent Anne Russell, president of the Greater Los Angeles Realtor Association.
“But (buyers) have a choice,” she added. “They can either sign a buyer rep agreement for that one particular property with the person who happens to be hosting that open house, … or the buyer also has the option to sign a piece of paper that says, ‘I’m unrepresented. I’m just looking at the house.’ ”
Q: Do I have to use forms and contracts prepared by the California Association of Realtors?
A: No. Some real estate companies are drafting their own forms.
Q: Is there an open source buyer’s representation agreement?
A: CAR recently released an updated version of its buyer’s representation agreement to its members. Other brokerages are drafting their own versions. In May, Zillow released a no-fee, one-week “touring agreement” that buyers can use for visiting a home they find on the internet.
In addition, the Consumer Federation of America released a tip sheet for buyers, including consumer-friendly terms they should look for in an agreement. The federation also praised eXp’s buyer representation agreement, calling it understandable and fairer to buyers.
Q: Do I have to use a Realtor or a real estate agent to make an offer on a home?
A: No.
The FSBO — for sale by owner — long has been a fixture of the real estate scene. And websites like Zillow, Redfin and realtor.com make it possible for home shoppers to see what’s on the market without an agent.
But real estate professionals strongly advise against taking on the complexities of a real estate purchase without professional advice.
“This is going to be, for most people, the most expensive purchase they ever make in their entire life. They would be foolish to shortchange themselves by looking for the cheap solution,” Russell said.
“We really become valuable when they say this is the house I want. Now we start negotiating,” Russell added. “We as agents help guide them through all of those inspections. We take them through the 97,000 pieces of paper they have to sign. … The difference between getting that kind of support and representation and trying to do it on your own could cost you well more.”
Southern California News Group business columnist Jonathan Lansner contributed to this report.
Originally Published:
Trouble looms for National Association of Realtors even after Aug. 17 deadline
On Aug. 17, policy changes for the National Association of Realtors will take effect.
Since the trade group proposed its landmark settlement, residential players have cast their predictions for the fallout once its deadline came and passed. Some dismissed the idea that it would trigger an industry-wide shift, while others predicted the new rules around commission sharing could thin residential broker earnings and agent ranks.
The post-deadline reality remains to be seen, but groups big and small are rolling out changes to get in line with the settlement, providing the first hints of how platforms and brokerages will build the road ahead for agents.
Zillow in May rolled out an agreement in line with NAR’s requirement for buyers to sign contracts with brokers before even touring a property. eXp Realty unveiled a new listing agreement that scraps commission sharing with buyers’ brokers in what CEO Leo Pareja called the company’s “best interpretation of the rule changes.”
The California Association of Realtors ran into an early roadblock when its own stab at getting its forms in line ran afoul of the Consumer Federation of America, which said the group spent too much time on “grammar, formatting and design” in an early draft — showing how tedious the new future of forms could be.
But even as the 1.5 million-member NAR looks to respond to allegations from home sellers, homebuyers and the federal government with some key rule changes, the group is far from being in the clear.
The trade group secured a pass in 2020, when it entered into an agreement with the Department of Justice under President Donald Trump’s administration to settle its investigation. But the DOJ withdrew in 2021, under President Joe Biden, and the two institutions spent the next two years in a back-and-forth over the government’s push for information.
A swell of class-action lawsuits tipped the legal balance. Home sellers and buyers claimed that baking in commissions had inflated prices and unfairly enriched residential brokers and firms.
In early October, days before the landmark Sitzer/Burnett case was scheduled to start trial, NAR made a last-minute bid to win favor among plaintiffs and federal prosecutors with an adjustment to the language that was at the heart of the lawsuit.
But it wasn’t enough for the DOJ, which wrote in response “that merely tweaking a buyer-broker commission rule to allow zero-percent commissions does little to ‘unfetter a market from anti-competitive conduct.’”
The DOJ remained in the background through the Sitzer/Burnett trial, guilty verdict and proposed $418 million settlement — before it secured a key green light this past April in the form of a ruling by a federal appeals court allowing it to reopen its antitrust investigation.
Among the rule changes included in its settlement, NAR promised to scrub offers of compensation from multiple listing services in the hopes of quelling the DOJ’s previously aired concerns about its policies.
The group would have to hold on until May for a look into the department’s thinking, when the DOJ weighed in on a case out of Massachusetts known as Nosalek. It was the first public comment on the commission issue since NAR reached its agreement, and the prognosis was less than solid.
“We believe offers of compensation should not be made anywhere, but certainly not on the MLS,” said Jessica Leal, an attorney for the department, without commenting directly on the settlement agreement.
All of this built up to a meeting in late June where NAR and DOJ leaders met face to face for likely the first time since the legal meltdown. It triggered residential leadership to warn its members against pursuing any “loopholes” under the new rules and to confirm that they expected the DOJ to “continue making inquiries into industry practices.”
And continue it did. From pushing for another shot in the Seattle-based lawsuit by discount brokerage REX Real Estate alleging unfair MLS practices to announcing a formal inquiry into the language on forms released by the CAR, the DOJ has thrown its authority into several fights around the national trade group.
The full settlement is not scheduled to receive final approval from a federal judge until November, leaving the DOJ months to interject on the issue.
The August deadline could be a sea change. But it won’t be the only one for the industry.
What the Realtor Lawsuit Settlement Means for Homebuyers and Sellers
Change is coming to the real estate business following a big legal win for home sellers.
Getty Images
The NAR litigation could eventually lead to changes in how agent commissions are set and paid out.
Homeowners could see a significant drop in the cost of selling their homes after a powerful real estate trade group agreed last week to resolve antitrust litigation accusing brokerages of inflating sales commissions.
The $418 million settlement calls for the Chicago-based National Association of Realtors (NAR) to eliminate decades-old rules on commissions, and make it easier for buyers to negotiate fees with their own agents or use no agents at all, Reuters reports. The accord resolves claims against more than 1 million members, state and local realtor associations, and most smaller brokerages.
The move could mean major shifts in how buyers and sellers pay their agents – and just how much those fees cost moving forward.
What's In The Settlement?
The March 15 settlement comes after several years of litigation, including class-action suits from home sellers and a legal battle with the U.S. Justice Department. As part of the settlement, the realtor group agreed to prohibit offers to compensate the buyer's agent on multiple listing services (MLS), a practice that critics say reduced price competition and led to inflated commissions and home prices.
NAR will also require buyer's agents to enter written agreements with all clients, outlining their fees and services before moving forward with any work. According to experts, the settlement will usher in sweeping change for buyers, sellers and agents alike.
“It's hard to predict the timing of actual changes to the real estate market, but it's clear now that change is coming, and perhaps sooner than anyone thought possible,” says Steve Nicastro, a real estate agent and content lead at Clever Real Estate in Charleston, South Carolina. “This will likely lead to lower commissions overall, and a change in how homebuyers use and pay their agent.”
What Were the NAR Lawsuits About?
It’s a little complicated, but the basis of the recent NAR lawsuits boiled down to the group’s MLS cooperative compensation rule, which was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation
According to that rule, in order to list a for-sale property on an MLS – the databases agents use to share properties amongst themselves – they must offer a commission to the agent who ultimately brings in the winning buyer. Historically, this has resulted in a 5% to 6% total commission, with half going to the seller’s agent and half to the buyer’s agent.
Here’s the catch, though: The buyer doesn’t pay their agent’s fee directly. Instead, the commission is fully paid by the seller as part of their closing costs. According to the recently settled suit, as well as other litigation, this amounts to a form of antitrust, allegedly reducing competition and pushing up commissions higher than services warrant.
While NAR agreed to settle the suits against it, the group has made it clear it denies any wrongdoing in connection with its MLS or compensation rules.
“NAR
has worked hard for years to resolve this litigation in a manner that
benefits our members and American consumers,” said Nykia Wright, interim
CEO of NAR, in a statement. “Ultimately, continuing to litigate would
have hurt members and their small businesses. While there could be no
perfect outcome, this agreement is the best outcome we could achieve in
the circumstances.”
What It Means for Buyers and Sellers
The rule changes, which are set to go into effect in mid-July, represent a major change to the way real estate agents have operated going back to the 1990s, and could lead to homebuyers and sellers negotiating lower agent commissions.
The settlement still needs court approval, but if that comes through, things could start to change in the real estate industry – and quickly. For one, buyers will need to start negotiating with their agents from the get-go.
“If the buyer’s agent fails to negotiate their commission with the seller, they will have to contract and arrange compensation to be paid by the buyer,” says Suzanne Seini, founder of Innovate Realty in Irvine, California. “This can strain first-time homebuyers who may be exercising their max budget to buy a home in the price point and area they desire.”
It could also have benefits, though, allowing buyers more freedom to pay for the services they want – and avoid paying for those they do themselves.
“Buyers will likely desire a more flexible structure now, as they can pick and choose which services they want from a buyer's agent,” Nicastro says. “So, I think it will be more like a pay-for-service structure versus a 2.5 to 3% flat commission rate.”
Luke Babich, CEO of Clever Real Estate in St. Louis, expects buyers to have more of a “menu” of services once the new rules go into effect.
“You could pay a small fee for an agent to do an on-demand showing for you, or you could pay 0.5% to 1% if you just want help with negotiations – and maybe that's all provided remotely,” Babich says. “You could pay 1.5% to 2% for an agent who will commit to a certain level of availability and take you to regular showings. We'll see a wider range in pricing for different service levels."
All in all, the changes will likely result in reduced commission costs across the board. Prior to the settlement, a report from consulting firm Keefe, Bruyette & Woods projected an “unbundling” of agent services could potentially reduce commissions as much as 2 percentage points or more. This week, economists told The New York Times it could mean about a 30% drop, which would take commissions from about 3% per agent down to around 2% or less.
These are just
initial predictions, though. It’s likely that fees and services will
evolve gradually over time as the industry, agents and consumers adjust
to the new normal.
Compare Top Mortgage Lenders
Advertiser Disclosure
Updated on March 20, 2024: This story was published at an earlier date and has been updated with new information.
Comments
Post a Comment