Before Getting into the Details of the Lawsuit and Settlement
It’s first important to understand what the NAR is.
The National Association of REALTORS® (NAR) is a professional organization in the United States that represents real estate professionals. It provides resources, advocacy, and professional standards for its members, who include real estate agents, brokers, property managers, and other industry specialists.
NAR members are known as REALTORS® and adhere to a strict code of ethics, ensuring professionalism and integrity in the real estate industry. The association also offers educational opportunities and supports legislation beneficial to real estate and property rights.
The National Association of REALTORS® (NAR) was involved in a significant lawsuit regarding how real estate commissions are structured. The lawsuit alleged that NAR’s rules and practices could lead to higher commission rates for consumers. Specifically, it challenged the practice of listing brokers offering compensation to buyer brokers, which plaintiffs argued could inflate costs for home sellers and buyers.
The Lawsuit and Its Claims
The lawsuit primarily focused on the Multiple Listing Service (MLS) system, where properties for sale are listed, and the practice of offering compensation to buyer brokers. The plaintiffs argued that this system could potentially harm competition by standardizing commission rates, effectively requiring sellers to pay the commissions of the buyer’s broker, even though the seller may not directly benefit from the buyer’s broker’s services.
Outcome of the Settlement
To resolve the lawsuit, NAR agreed to a $418 million settlement. While NAR did not admit any wrongdoing, they agreed to change certain practices to enhance transparency and consumer choice in real estate transactions. Key changes include:
1. Prohibition of Mandatory Offers of Compensation: The settlement requires that offers of compensation to buyer brokers are not mandated by the MLS rules. This change aims to give sellers more control over how much they offer to pay buyer brokers, potentially leading to more competitive commission rates.
2. Enhanced Disclosure Requirements: There is now a requirement for greater transparency about commission rates, including making clear the total compensation offered to the buyer broker, which can help both sellers and buyers better understand the costs involved and negotiate accordingly.
3. Reinforcement of Buyer-Broker Agreements: The settlement also emphasizes the importance of written agreements between buyers and their brokers. This ensures that buyers are aware of the terms of their relationship with their broker, including how the broker is compensated.
In the Department of Justice’s first public comment on the commissions/compensation issue since the NAR reached its agreement, Jessica Leal, attorney for the department said,
“We believe offers of compensation should not be made anywhere, but certainly not on the MLS.”
Impact on Buyers and Sellers
For Buyers:
- Increased Awareness: Buyers and sellers now have more access to information about commissions.
- Opportunity to Negotiate: Through increased transparency and the ability to negotiate, buyers or sellers may be able to pay lower commission rates, reducing overall transaction costs.
For Sellers:
- Greater Flexibility: Sellers can now decide how much commission they are willing to offer to buyer brokers, potentially reducing their selling costs.
- Negotiation Opportunities: By not being locked into a set commission structure, sellers have more room to negotiate terms that best suit their financial interests.
*It is important to remember that real estate brokers must still be paid for their professional services. As in the past you can expect some brokers who offer limited support and services to offer discount pricing, while agents who pride themselves on offering full-service options will expect to be paid accordingly.Realty commissions have always been negotiable and will continue to be. Consumers will still want to choose wisely and work with agents they feel are capable of helping them reach their goals and protect their interest. What is changing is how commissions will be offered, which allows for deeper conversations about commissions.
Overall Implications
The settlement aims to bring more fairness and transparency to real estate transactions. By allowing more flexibility in how commissions are set and disclosed, the changes could lead to a more competitive market where both buyers and sellers are better informed and have more control over their financial outcomes.
This shift in practice emphasizes the importance of clear communication and written agreements, ensuring all parties understand the financial aspects of real estate transactions. While these changes may initially require adjustments from us as industry professionals, the long-term goal is to foster a more transparent and consumer-friendly real estate market, which I’M ALWAYS IN FAVOR OF.
On August 17, 2024, new practices will be put into place. The Mississippi Association of Realtors has been working with their attorney to make new listing agreements available that offer more options to sellers regarding how buyer agent compensations will be offered. Also effective August 17th, buyer’s will be required to sign a buyer’s agency agreement that outlines what they can expect from their agent, as well as how broker compensation will be handled.
For further details on the settlement and its implications, you can visit the NAR website. If you have additional questions about what this means for you as a consumer, please don’t hesitate to reach out to me. I’m happy to open the floor and have a discussion.
Rexanne
Rexanne Collins, HomeGirl @ EXP Realty
“Because the right changes everything.”
C: 662.586.1640
O: 855-647-7397
Email: RexanneSellsHomes@gmail.com
