NAR Settlement Explained

Understanding the Lawsuit: Price Fixing Allegations
The lawsuit centered on allegations that NAR and several major real estate companies conspired to fix commission rates at around 5-6%. This practice, known as "tying," forced home sellers to pay a set amount for buyer agent commissions when listing their property on the Multiple Listing Service (MLS). The court sided with the plaintiffs, concluding that this practice violated antitrust laws. While NAR supports the cooperative commission system benefits consumers, they are appealing the verdict.

Key Changes Implemented: More Transparency and Negotiation
The core changes from the settlement will take effect on August 17, 2024:

• Decoupling Commissions: Traditionally, the MLS listing displayed a bundled commission rate that went to both the seller's agent and the buyer's agent. Now, these commissions are "decoupled," meaning they are negotiated and paid separately. This allows for more flexibility and potentially creates opportunities for savings.
  
  Builders will now have to negotiate and pay commissions for buyer and seller agents separately, potentially leading to more competitive rates and cost management opportunities.
• Written Agreements for Buyers: To ensure transparency around fees and services, buyers working with an MLS agent must now sign a written agreement before touring properties. This agreement should clearly outline the scope of the agent's services and the compensation structure. It must include:
  • Specific and conspicuous disclosure of the amount of rate of compensation to the Buyer, or how the amount of compensation will be determined.
  • The amount of the compensation in a manner that is objectively ascertainable and not open ended.
  • A term that prohibits the participant from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement with the buyer.
  • A conspicuous statement that broker fees and commissions are not set by law.
    
    Builders must clearly disclose commission agreements and any fees for buyer agents, helping buyers understand the full cost of purchasing a new home, which could influence their decision-making. 
    
    
• Focus on Negotiation: Disclosures will be mandated, emphasizing that commissions are fully negotiable for both buyers and sellers. This empowers both parties to discuss and agree on a fair commission rate based on the specific transaction. Please note that offers of compensation can be an option that consumers can pursue off the MLS through negotiation with buyer brokers. These can include offers of fixed fee commissions paid directly by the buyer, a concession from the seller, or a portion of the listing broker’s compensation.
  
  
  With commissions being fully negotiable, builders may need to offer more favorable terms to attract buyer agents, affecting the overall marketing and sales strategies of new home developments. Or offer incentives to buyers to help them pay for the avg. 3%.

Common Questions Answered

Q: In the buyer agreement, can buyers and buy brokers agree to a rang of compensation? 

A: NAR policy will not dictate the compensation agreed between buyers and buyer brokers (e.g., $0, X flat fee, X percent, X hourly rate).

Under the settlement, any compensation agreed to must be objectively ascertainable and not open-ended. For example, the range cannot be “buyer broker compensation shall be whatever amount the seller is offering to the buyer.”

Q: If an MLS Participant hosts an open house or provides access to a property, on behalf of the seller only, to an unrepresented buyer, will they be required to enter into a written agreement with those buyers touring the home?

A: No. In this case, since the MLS Participant is only working for the seller, and not the buyer, the MLS Participan t does not need to enter into a written agreement with the buyer.

Similarly, 

Q: Is a written buyer agreement needed if a potential, unrepresented buyer walks into a builder's (the seller's) model home or attends an open house?

A: No. A buyer agreement is only required where MLS participants are working with a buyer. The guidance is as follows:

• The “working with” language is intended to distinguish MLS Participants who provide brokerage services to a buyer—such as identifying potential properties, arranging for the buyer to tour a property, performing or facilitating negotiations on behalf of the buyer, presenting offers by the buyer, or other services for the buyer—from MLS Participants who simply market their services or just talk to a buyer—like at an open house or by providing an unrepresented buyer access to a house they have listed. 
  
  
• If the MLS Participant is working only as an agent or subagent of the seller, then the participant is not “working with the buyer.” In that scenario, an agreement is not required because the participant is performing work for the seller and not the buyer.
  
  
• Authorized dual agents, on the other hand, work with the buyer (and the seller).

Impact on the Industry: A Potential Reshaping
The decoupling of commissions and increased emphasis on negotiation could lead to several changes in the real estate industry:

• Shift Towards Negotiation: Similar to commercial real estate, commissions for residential transactions will likely become more individually negotiated, potentially leading to more competitive rates.
• The Power of the MLS: With commission offers removed from MLS listings, the influence of the MLS might wane. Sellers may be more inclined to consider pocket listings to attract buyers willing to negotiate commissions.

Pocket listing: Also known as an off-market listing, is a real estate property that's marketed to potential buyers through private channels or word of mouth instead of being listed on the Multiple Listing Service (MLS). The term comes from the idea that real estate agents keep these listings in their metaphorical "pocket". 

Who is Covered by the Settlement?
The settlement applies to most NAR members and smaller brokerages. Large companies like HomeServices of America are not yet included in this settlement, but they may face similar legal challenges.

Settlement Terms: A Multi-Million Dollar Resolution

• NAR will distribute a total of $418 million over four years.
• The settlement eliminates the requirement for sellers' agents to automatically offer buyer agent commissions in the MLS listings.
• The use of MLS data to create platforms displaying commission rates from multiple brokers is prohibited.

What Buyers and Sellers Should Do

• Embrace Negotiation: Be prepared to negotiate commission rates with both your buyer's agent and seller's agent (if applicable). Research typical commission rates in your area to get a benchmark for negotiation.
• Ask Questions: When interviewing agents, inquire about their service offerings, pricing structure, and experience.
• Understand the Written Agreement: Before signing a written agreement with a buyer's agent, thoroughly review the details of services provided and the agreed-upon compensation.

Looking Forward: A New Landscape for Real Estate Transactions
The NAR settlement ushers in a new era for real estate transactions. With a focus on transparency and negotiation, buyers and sellers now have greater control over commission costs. By understanding the settlement's implications and approaching the process with informed negotiation, both parties can navigate this new landscape successfully. 

Note: The final settlement approval hearing will occur on November 26, 2024.