On March 15, 2024, the National Association of Realtors® (NAR) reached a significant settlement that made headlines and is set to reshape the real estate industry. This agreement was the result of ongoing litigation related to broker commissions and will introduce new rules designed to enhance transparency and competition within the market. These changes will take effect on Aug. 17, 2024, and will have far-reaching implications for real estate professionals and consumers alike.
What Happened?
The legal battle began when plaintiffs, representing home sellers, accused NAR of engaging in practices that violated antitrust laws. At the heart of the dispute was the issue of commission sharing, where the seller’s agent typically splits their commission with the buyer’s agent. Critics argued that this system lacked transparency, leading to inflated costs for consumers and limiting fair competition among real estate agents.
Over the years, concerns had been growing about whether NAR’s commission policies were fostering a competitive market or unfairly keeping prices high. Media outlets like The Wall Street Journal highlighted these issues, noting how they potentially stifled competition and left buyers and sellers in the dark about who was paying what.
After a lengthy legal process, NAR agreed to a settlement. The agreement includes not just a financial component but also commitments to significant changes in how real estate transactions are conducted. These changes aim to bring greater transparency and fairness to the industry, ensuring that consumers have more control and understanding over the costs associated with buying or selling a home.
What’s Changing?
The settlement introduces several key changes that will affect how real estate agents operate and how consumers engage in the home-buying process.
Written Agreements with Buyers: One of the most notable changes is the requirement for real estate agents to enter into written agreements with buyers before they tour a home. These agreements must include:
A specific and clear disclosure of the compensation the agent will receive or how this amount will be determined.Compensation that is objective (e.g., a flat fee, a percentage, or an hourly rate), rather than open-ended.A clause that prohibits the agent from receiving compensation for brokerage services that exceeds the agreed-upon amount.A conspicuous statement that broker fees and commissions are fully negotiable and not set by law.
NAR has long encouraged its members to use written agreements with buyers, as they help clarify the roles, responsibilities, and compensation involved in a real estate transaction. Several states already require such agreements, and now, this practice will become standard across the country.
Changes to MLS Communication: The settlement also impacts how real estate professionals communicate about commissions on Multiple Listing Service (MLS) platforms. Offers of compensation can no longer be made through MLS. Instead, sellers can offer compensation off an MLS, but they can still list buyer concessions on the platform, such as concessions for closing costs.
This change is intended to increase transparency and allow for more flexibility in how commissions are negotiated. It gives consumers a clearer understanding of the costs involved in their transactions and encourages more competitive pricing.
Increased Flexibility in Commission Negotiations: The new rules also promote greater flexibility in how commissions are negotiated. This means that buyers and sellers will have more power to negotiate the fees they pay to real estate agents. The aim is to create a more competitive market where agents must demonstrate their value to earn their fees.
As reported by The New York Times, this change could lead to a more dynamic market where consumers benefit from lower costs and better service.
Educational Initiatives: To help smooth the transition to these new rules, NAR has agreed to implement educational programs for both real estate professionals and consumers. These initiatives will ensure that everyone involved in a transaction understands the new rules and knows how to navigate the changing landscape.
“This is about making sure everyone knows where their money is going,” said Mark, a real estate veteran. “It’s common sense, really. But it’s something that’s been glossed over for too long.”
What Does It Mean for Buyers and Sellers?
For homebuyers and sellers, these changes mean a more transparent and potentially more cost-effective real estate process. If you’re a buyer, you’ll now need to sign a written agreement with your agent before touring a home. This agreement will clearly outline the services provided and the compensation involved, giving you a better understanding of what you’re paying for.
For sellers, the elimination of mandatory commission offers on MLS platforms means you’ll have some flexibility in how you negotiate commissions with buyer’s agents. This could potentially lead to lower overall costs and a more competitive market. It’s also important to note that agent compensation remains fully negotiable, so it’s in your best interest to ask questions and explore your options when working with a real estate professional.
When touching base with a fellow agent, they felt that from a selling standpoint, it’ll all shake out in a similar fashion as it does in the present. “At the end of the day, you want to attract and drive buyers to your listing, because the more exposure, the higher the likelihood of it selling.”
What Does It Mean for the Industry?
The NAR settlement marks a significant turning point for the real estate industry. By promoting transparency and competition, the settlement is likely to lead to several long-term changes:
Increased Competition: With more flexibility in commission negotiations, real estate agents will need to compete more actively based on the quality of their services. This could result in better service and potentially lower costs for consumers.Potential Changes in Business Models: Real estate companies may need to adjust their business models in response to the new regulations. Firms that rely heavily on traditional commission structures may need to innovate to remain competitive, possibly developing new pricing models or value-added services.Impact on Agent-Client Relationships: The increased transparency and flexibility could lead to more collaborative relationships between agents and their clients. Agents will need to be more upfront about their fees and more willing to negotiate, leading to a more client-focused approach to transactions.
The Road Ahead
I think that we’re very fortunate to be doing real estate in the state of Minnesota because our forms and practices are advanced and so far ahead of other states. The forms we are mandated to use have always prioritized transparency when it comes to listings, listing contracts, buyers representation, etc. and I feel that if you have been conscious and intentional and have been going through those contracts with your buyers and sellers in detail, that the implementation of these changes won’t really impact your objectives or your level of transparency as a realtor.
As the real estate industry adapts to these changes, the settlement serves as a reminder that the industry strives for consistent accountability and fairness for all involved in real estate transactions. These changes are about maintaining a healthy market that prioritizes transparency and advocates for everyone’s needs—buyers, sellers, and agents alike. If you, like many, are unclear of the changes and what they mean for you as a potential buyer or seller in the market, don’t hesitate to ask a realtor in your life to help make sense of the changes. The full impact of these changes and their effect will likely unfold over time.
-Fiona Peterson, Coldwell Banker Northwoods Realty
Local News
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