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NAR Settlement and Its Impacts

Photograph of a wooden gravel with a model of a white home in the background

The National Association of Realtors (NAR), a powerful organization that has set the guidelines for home sales for decades, has agreed to settle a series of lawsuits by paying $418 million in damages and by eliminating its rules on commissions. The deal would end a multitude of legal claims from home sellers who argued that the rules forced them to pay excessive fees. This settlement will have far-reaching implications for agents, buyers, sellers, and the real estate industry as a whole.

What is NAR?

NAR (National Association of Realtors) is a professional organization with more than 1.5 million members who work in residential and commercial real estate. NAR was established to enhance the real estate profession and encourage professional conduct among its members. It upholds a code of ethics, requiring adherence from all members.

What is the NAR Settlement?

In October, a federal jury ruled that the National Association of Realtors had conspired to artificially inflate commissions and ordered the group to pay damages of $1.8 billion. The verdict emerged from an anti-trust lawsuit filed in 2019 by Missouri home sellers. They challenged the widespread industry practice where sellers are required to pay the commissions for both the seller's and buyer's agents. This practice and others have led to a national commission rate of 5 to 6 percent, significantly higher than in many other countries, arguing that it breached anti-trust laws.

The lawsuit, which involved allegations of antitrust violations, positioned plaintiffs to potentially receive triple damages amounting to as much as $5.4 billion. In a strategic move, the association relinquished its right to appeal in exchange for a reduction in damages. This verdict has had a profound impact on the real estate industry, sparking over a dozen similar lawsuits nationwide, including a significant class-action case that implicates the nation's largest brokerage, owned by Warren E. Buffett, Berkshire Hathaway. Unlike Berkshire Hathaway, which has yet to settle, other major firms such as Keller Williams and Re/Max have reached settlements in separate cases. Under the settlement, tens of millions of home sellers may be eligible to receive a small piece of a consolidated class-action payout.

How Will the NAR Settlement Impact NAR?

The agreement introduces several critical regulatory changes. It prohibits the National Association of Realtors (N.A.R.) from implementing rules that would enable a seller's agent to determine the compensation for a buyer's agent. This practice has been criticized for leading to "steering," where buyers' agents push their clients towards more expensive homes to earn larger commissions.

N.A.R. has consistently maintained that it does not own multiple listing sites, yet the vast majority are owned and operated by local Realtor associations, which function as N.A.R. subsidiaries. However, with the settlement now decoupling agent compensation from M.L.S. access, numerous agents are poised to reassess their association membership.

How Will the NAR Settlement Impact Agents, Sellers, and Buyers?

The lawsuits argued that N.A.R., and brokerages who required their agents to be members of N.A.R., had violated antitrust laws by mandating that the seller’s agent make an offer of payment to the buyer’s agent, and setting rules that led to an industry-wide standard commission. Without that rate essentially guaranteed, agents will now most likely have to lower their commissions as they compete for business. For buyers, there's hope that lowered commission fees, which are traditionally factored into home prices, might lead to a decrease in home prices.

Furthermore, with buyers now responsible for compensating their own agents, many may choose to bypass agents entirely or opt for limited services, such as assistance with drafting offers and contracts, while managing home searches, inspections, and other aspects of the purchasing process independently. The merits of this shift are up for debate. While platforms like Zillow and Redfin have simplified the home search process, brokers maintain that buyers benefit from professional representation. However, with the onus on buyers to pay agents directly, there's concern that many will forego representation, potentially to their disadvantage.

Additionally, on the Multiple Listing Services (M.L.S.)— the online platforms for buying and selling homes— the agreement mandates the complete removal of any fields that display broker compensation. This will also enforce a comprehensive ban on the longstanding requirement for agents to join multiple listing services to offer or accept payment for their services, aiming to make the real estate market more transparent and fair

The reset button on the sale of homes was hit today,”  said Michael Ketchmark, the Kansas City lawyer who represented the home sellers in the main lawsuit. “Anyone who owns a home or dreams of owning one will benefit tremendously from this settlement.”

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