$418 million NAR Proposed Settlement
In the world of real estate, a clear shift is underway. Recently, the National Association of Realtors (NAR) reached a proposed settlement in 2 landmark lawsuits that could reshape how homes are bought and sold. This isn’t just any settlement—it’s a whopping $418 million agreement, signaling significant changes on the horizon. Despite this monumental development, NAR continues to vehemently deny any wrongdoing, maintaining its stance on the integrity of its practices and policies.
My Perspective
As a dedicated real estate agent, I am deeply invested in ensuring that my clients, both home sellers and buyers, receive the best possible service and guidance throughout their real estate transactions. This includes staying informed about significant developments within the industry that may impact their experiences. However, it’s important to clarify that while I strive to provide valuable insights, I am not a lawyer and this blog does not constitute legal advice.
Overview
Originating from the Sitzer/Burnett class action lawsuit, multiple home sellers took legal action against NAR and other defendants, alleging that commission practices led to artificially inflated fees. The lawsuit questioned the practice of commission payments in real estate transactions.
The recent proposed settlement reached by the National Association of Realtors (NAR) is one such development that warrants attention. This settlement, which is still pending approval from the court, addresses concerns related to broker commissions and has far-reaching implications for both sellers and buyers in the real estate market. If approved, the changes outlined in the settlement are expected to be implemented in mid-July 2024. As someone who is dedicated to serving the best interests of my clients, it is important for me to provide insights and clarity on this matter to help navigate through the changes effectively.
Settlement Details
The proposed $418 million settlement is nothing short of substantial. It’s a testament to the magnitude of the issues at hand and the desire for resolution. But who’s included in this agreement? According to the NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned Multiple Listing Services (MLSs), and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below are covered. However, it’s important to note who’s not included. Agents affiliated with HomeServices of America and its related companies, along with employees of remaining corporate defendants named in the cases, are not released under the settlement.
Negotiation Dynamics
Now, let’s delve into what this settlement means for negotiation dynamics in the real estate market. Contrary to some misconceptions, it doesn’t fundamentally alter how buyers and sellers negotiate with their agents. Instead, it shifts the negotiation line before any showings are taking place, ushering in significant changes to the home buying and selling process.
The biggest change is the requirement for buyers to be represented by an agent when visiting homes, shifting the representation timeline before any property is been shown. At that time the buyers will get to know and understand what services are provided to them and negotiate the cost of these service. However, the sellers will continue to be able to offer compensation for the buyers agent, but that cannot be publicized in the MLS, unlike before, when that was a requirement.
This shift underscores the importance of establishing the agent-client relationship from the outset of the home search process, offering distinct advantages to buyers. By working with an agent from the get-go, buyers gain access to valuable expertise and guidance tailored to their specific needs. Additionally, having a dedicated agent advocate on their behalf ensures that buyers receive unbiased advice and support throughout the entire purchasing journey.
Moreover, the requirement for buyer representation safeguards buyers from potential pitfalls in the home buying process. When visiting homes with a showing agent – that would be any agent they choose to present the property without buyer-agent representation agreement – that agent implicitly represents the seller’s interests (see my article from 2020 here), and buyers are risking to divulge sensitive information or unintentionally revealing their negotiating position to the showing agent. By partnering with their own dedicated agent, buyers can confidently navigate property viewings, knowing that their best interests are always front and center.
In essence, the shift towards mandatory buyer representation heralds a new era of empowerment for homebuyers. It enables them to make informed decisions, protect their interests, and ultimately secure the home of their dreams with confidence and peace of mind.
Costs Considerations
While the proposed settlement offers resolution to ongoing litigation, it doesn’t guarantee cost stability for REALTORS®. One key concern is the absence of a promise from the NAR not to raise REALTOR® fees starting in 2025. This could have implications for REALTORS’® negotiation bottom lines, potentially leading to higher costs down the road. It’s a factor that both REALTORS® and their clients need to be aware of as they navigate the post-settlement landscape.
It’s crucial to distinguish between licensed agents and REALTORS®. A REALTOR® is a licensed real estate professional who is an active member of the National Association of REALTORS® (NAR) and their local and state real estate associations. By being a REALTOR®, agents commit to upholding the NAR Code of Ethics and Standards of Practice, which includes a fiduciary duty to their clients. On the other hand, licensed agents who are not REALTORS® may not have the same obligations and standards of conduct, potentially affecting the level of service and advocacy they provide to their clients.
Despite potential increases in association costs for REALTORS®, the benefits of working with a REALTOR® remain significant. REALTORS® have access to a wide range of resources, market insights, and professional networks through their affiliation with NAR. More importantly, they are backed by NAR’s steadfast commitment to their agents and their clients, ensuring that ethical standards are upheld and that clients receive exceptional service and representation throughout the real estate transaction process. Therefore, clients should carefully consider whether they prefer to work with a REALTOR® who not only adheres to these ethical standards but also benefits from NAR’s unwavering dedication to their agents and their agents’ clients, or a licensed agent who may operate under different guidelines.
Embracing Transparency
Transparency is crucial in this evolving real estate environment. As changes unfold, it’s essential for all parties involved—buyers, sellers, and agents—to have a clear understanding of the implications. By being informed and proactive, individuals can better navigate the complexities of the real estate market and make decisions that align with their goals. In conclusion, while the proposed settlement marks a significant milestone in the real estate industry, it’s just the beginning of a new chapter. As we adapt to these changes, it’s important to stay informed, ask questions, and seek guidance when needed. Whether you’re a buyer, seller, or agent, understanding the specifics of the settlement and its potential impact is key to making informed decisions in today’s ever-changing real estate landscape.
In summary:
* NAR continues to deny any wrongdoing while agrees to pay $418 million over 4 years if the proposed settlement is approved by the court
* Buyers will have to have a signed representation agreement with their real estate agent before any showings can take place
* Sellers and seller’s agents/brokers can still offer to compensate buyer’s agents, but the compensation cannot be published in the MLS
Resources:
- NAR proposed settlement. – here
- NAR press release here
- Who is covered and who is not here
- Sitzer/Burnett vs NAR lawsuit here
- Moehrl vs NAR lawsuit here
- The Residential Buyer/Tenant Agreement here