The real estate landscape has shifted dramatically as the National Association of Realtors (NAR) reached a monumental $418 million settlement in commission lawsuits. This agreement, coupled with significant rule changes, promises to reshape how millions of home buyers and sellers navigate transactions and how Realtors like yourself are compensated.
These lawsuits, the first of which was filed in 2019, allege the NAR artificially inflated Realtor commissions that home sellers pay, which then likely inflated home prices. It is also argued that due to the MLS' current rules, buyer agents have been incentivized to avoid showing their clients listings where the listing agents offer lower commissions.
This specific $418 million settlement is for the Sitzer/Burnett case out of Missouri filed by unhappy home sellers. RE/MAX has already reached a $55 million settlement, specifically with the Burnett, Moehrl, and Nosalek cases. This agreement would resolve all claims against RE/MAX, LLC, though they continue to deny the allegations and do not acknowledge any wrongdoings.
As for the NAR, this proposed $418 settlement (still pending court approval) would be paid over four years to home sellers around the country. In settling, the plaintiffs of this case have agreed to release the NAR from the Jury verdict, and the NAR has agreed not to appeal the case.
However, this settlement isn't just money changing hands; it's coupled with major rule changes that could affect millions of sellers, buyers, and real estate agents. Let’s dive into the bigger effects this case could have on the industry and housing market.
Changing Rules for Agents
If the court approves this settlement, the NAR will be banned from establishing rules that allow a seller's agent to set compensation for a buyer's agent. The settlement did not eliminate allowing compensation to buyer agents, it just removed a requirement for cooperative compensation.
Another change is that agent compensation will no longer be listed on the MLS. It has been argued that these listed compensations incentivized buyer agents to push more expensive properties on their clients.
Finally, buyer agents must enter into written representation agreements with their buyers before moving forward with any business (i.e. showing any homes, etc).
The Impact on Agents
The 6% commission fee has always been negotiable, but critics argue these fees were expected and home sellers felt they would lose buyers if they didn't offer them.
We could see a more competitive market for buyer agents, with Realtors vying for buyers' business. Your buyer clients will likely heavily negotiate with you before signing the newly required agreements. It will be vital for you to showcase your real estate talents and experience up front. Some agents may choose to offer flat fees for their services based on things like negotiation skills, past experience/results, knowledge of the local market, communication skills, and more.
Some experts even suggest the possibility of dual representation. Matthew VanFossen, a Forbes Business Council Member, says, "I believe that with the potential for the buyer agent role to be diminished, real estate agents might begin to engage in a practice known as dual representation, where they act as both the seller and buyer agent in a transaction."
The Agent-Loan Originator Relationship
These changes present an opportunity for loan officers to collaborate more closely with listing agents, assisting buyers in the pre-approval process as they make offers on properties. Also, there's a growing potential for buyer agents to expand their expertise by teaming up with expert loan specialists. By doing so, they can streamline the application process, pre-qualify buyers, and structure deals more effectively.
Ultimately, these changes could boost efficiency for listing agents, making it easier to handle showings and offers.
The Housing Market
Some experts believe this NAR settlement could send ripples through the market, maybe even nudging down home prices (though this would happen very slowly). Right now, many home listing prices consider agent commissions since sellers account for it. But these new rules could make it easier for buyers and sellers to negotiate commissions, thus reducing costs including the price of the home.
Nevertheless, reduced fees don't necessarily mean lower home prices. Some experts suggest that sellers might still list their homes at the same price as they would have pre-settlement and retain a larger portion of the proceeds from the sale. Yet, lower commission fees could encourage more homeowners to sell, which could lower home prices overall.
A lot is still up in the air, and though we don't have many answers yet, we're in this together and here to help you build your business! The last 18 months have been tough for the industry as a whole, and staying on top of these changes is vital to ensure you’re prepared for whatever comes your way. This real estate industry has always called for adaptability and resilience, and we’re here to provide you with the tools you need to succeed.
We will provide more updates on this topic as information is released, so keep an eye out for updates from us as the dust settles!
