NAR Settlement: What it Means for the Future of the Real Estate Industry

On March 15, 2024, The National Association of Realtors®(“NAR”) reached a settlement agreement (“Settlement”) with plaintiff home sellers, which resolved multiple class action lawsuits alleging anti-competitive practices. The nature of these lawsuits mostly centered on broker commissions. You can read the full text of the Settlement agreement here.

This Settlement agreement became effective on August 17th, 2024 and is expected to shake-up the real estate by changing the manner in which Realtors®[1]get paid while helping people buying and selling their homes.

Indeed, there will be much speculation about the effects of the NAR Settlement, and for all that, only time will tell, i.e.—how prices of homes will be affected, whether it will be harder for buyer-side Realtors® to obtain clients, etc. However, this article will focus on the immediate changes to assist Realtors, buyers, and sellers in navigating through the future of the home selling and buying process.

Background on the NAR

First, a bit of background regarding the NAR to provide some context on the Settlement. The NAR is a trade organization that has approximately 1.5 million members nationwide. In 1913, the organization adopted its first code of ethics, which established courtesy, etiquette, and other standards to facilitate cooperating with other Realtors® as they represent their clients. The NAR produces a handbook on the Multiple Listing Service, which is a system that allows users to find real estate listings by Realtors® and other realty professionals. The MLS Handbook indicates that “the basis of the multiple listing activity is the creation of a facility whereby Realtors® may most effectively invite other brokers to enter into cooperative agreements with them for the sale of their listings and provide information necessary to permit such cooperation…” Additionally, “the concept of cooperation in real estate transactions can be enhanced by a mechanism such as the [MLS] which enables a REALTOR to cooperate with other REALTORS®…”

The Background of the Lawsuits

Prior to August 17^th, if a buyer and seller both had agents, typically, a seller’s agent would offer to split the commission of the sale with the buyer’s agent, usually between 5-6% of the sale. While this was not a requirement per the MLS handbook, this became common practice among agents. Thus, the seller has usually ended up paying the commission of both its agent and the buyer’s agent. Prior to the Settlement, some states required buyer-agent agreements, in which a buyer agrees to have an agent or broker represent them in the home buying process. In most other states, however, no such requirement existed. Therefore, a buyer could choose an agent or broker to represent them without ever signing an agreement or sometimes even understanding how their agent or broker was to get paid for the sale.

The main allegation from the plaintiff home sellers in the four lawsuits was that the NAR participated in a conspiracy to raise, fix, maintain, or stabilize real estate commissions through the current structure described above. The NAR denied these allegations and asserted corresponding defenses. The point of the Settlement was not to point the finger at the NAR or even that the NAR accepted fault, but to settle on some key principles to avoid further expense, inconvenience, and distraction from the litigation, which began in 2019.

Key Practice Changes after the Settlement‍

Here are the key points to practice changes, which, per the Settlement, the NAR was to begin implementing on August 17^th, 2024:

• Eliminate and prohibit any requirement that listing agents/brokers or sellers must make offers of compensation to buyer agents/brokers;
• Eliminate and prohibit any requirement that such offers described in point one above must be blanket, unconditional, or unilateral;
• Prohibit seller agents/brokers from (a) making offers of compensation on the MLS to buyer agents/brokers or (b) disclosing the listing agent/broker compensation or total compensation;
• (a) Eliminate and prohibit all agent/broker compensation fields on the MLS, and (b) prohibit sharing offers of compensation on the MLS;
• Eliminate and prohibit requirements conditioning participation in membership in MLS on offering or accepting offers of compensation to buyer agents/brokers;
• Agree not to create, facilitate or support any non-MLS mechanism for listing agents/brokers or sellers to make offers of compensation to buyer agents/brokers. This would be through other common website for listing and searching for homes like Zillow, Realtor.com, Trulia, Redfin, etc.;
• Require all MLS participants working with a buyer to enter into a written agreement before the buyer tours a home, whether virtual or in person with the following requirements: 
  • the agreement must specify the amount or rate of compensation the buyer agent/broker will receive or how it will be determined,
  • the amount of compensation reflected must be ascertainable and not open-ended, e.g.—“buyer broker compensation shall be whatever amount seller is offering to buyer,”
  •  Such Realtors® may not receive compensation for brokerage services from any source that exceeds amount or rate agreed to in agreement with buyer; and
• Prohibit Realtors® from representing to their client that services are free or available at no cost unless they will receive no financial compensation from any source for their services;
• Require Realtors® to conspicuously disclose to sellers and obtain seller approval for any payment or offer of payment that listing agent/broker or seller will make to another broker, agent, representative (attorney) acting for buyers;
• Require Realtors® to disclose in conspicuous writing that broker commissions are NOT set by law and are fully negotiable; and
• Require that Realtors® do not filter out or restrict MLS listings based on existence or level of compensation offered to buyer broker.

However, the Settlement states that all the changes in the Settlement agreement do NOT prevent (a)offers of compensation to buyer agent/brokers off the MLS, or (b) offers of buyer concessions on the MLS, so long as the concessions are not limited to or conditioned on the retention of payment to a cooperating buyer agent/broker.

Therefore, there still could be a scenario in which the seller and the seller’s agent/broker agree to a 6% commission that the seller will pay as part of the closing proceeds and the seller’s agent/broker will split such commission with the buyer’s agent/broker, as long as that all takes place outside the MLS or any related platform. For example, the seller and the seller’s agent/broker could agree to the commission amount and split, then if the buyer's agent/broker contacts the seller’s agent/broker for more details about the property, the seller’s agent/broker could offer to split the commission.

The Future

This article will avoid future speculation about how these changes will affect the real estate industry—whether positively or negatively. However, there are certain opportunities of which Realtors®, sellers, and buyers can take advantage.

For sellers, they can consider offers from buyers who choose to pay their agents outside of the transaction and not as part of the closing costs. As mentioned above, the offer of unilateral offers through the MLS are prohibited, but the seller can look at offering certain closing incentives to close on the sale. Such incentives could include covering certain closings costs, making repairs, offering home warranties, offering upgrades, etc.

For buyers, the Settlement requires that they enter into agreements with their agents/brokers and as a result, they will likely compensate agents directly on future deals. Yet, they may be able to get their agents/brokers to stipulate certain closing costs to help lower the overall costs of buying a home. Ultimately though, buyers will have more transparency about the costs upfront and not be unknowingly paying their agent’s/broker's commission. Moreover, even if the buyer has to cover its agent’s/broker's costs, they may be able to get the seller to cover some additional closing costs. All that to say, it is not guaranteed that all buyers will be paying more overall costs in a transaction.

For agents and brokers, they will need to be transparent about their costs upfront to their clients. While some speculation exists out there that the Settlement will be harder on buyer brokers, there may be a chance for brokers to market and communicate their value to their clients, such as being able to effectively negotiate other parts of the transaction to help lower the costs for their client.

For questions about the NAR Settlement or other related real estate matters, contact Austin M. Tinsley at 513-768-9709 or amtinsley@strausstroy.com. Austin regularly handles both commercial and residential real estate matters, and is licensed in Ohio, Kentucky, and Indiana.

[1]“Realtors®” are either licensed real estate agents or brokers who are members of the NAR. For further discussion on the effects of other agents and brokers, consult the full text of the Settlement.