The NAR Lawsuit Settlement: A Realtor's Perspective on What's Next

As you might be aware, the National Association of Realtors (NAR) recently reached a settlement agreement following a lawsuit regarding, amongst other things, the way buyer agent commissions are displayed on MLS listings. This has been a hot topic in the industry, and I wanted to take a moment to break it down from a Realtor's perspective and explore what it means for the future of real estate.

This unfortunately will not keep trend with some of my more light-hearted newsletter posts.? So let’s get those serious faces on.

A Look Back: The Lawsuit and its Premise

The lawsuit centered around the idea that the current way the NAR and agents within the industry conducted business artificially inflated agent commissions which in turn artificially inflated home prices. At the heart of the matter is how/why/who pays for the buyer agent commission.? While buyer agent compensation has always been a separate negotiation between the client and the agent, some argued that the current system limited the opportunity for the buyer to negotiate with their own agent.? You see, since the buyer’s agent would most likely be paid from the seller’s side anyways, the argument is that it only serves to inflate the price of the home because the seller would hike it up to cover that commission.

The Settlement and its Key Points

The settlement resulted in a few key changes to be implemented as of mid-July 2024 (pending court approval):

• No Buyer Agent Compensation on MLS: The MLS will no longer display offers of buyer agent compensation. This means buyers nor their agents will see commission information attached to listings.? It will be negotiated per each individual contract.
• Require MLS participants working with buyers to enter into written agreements with their buyers. this has been the standard for many of us anyways I’m glad this is now absolute requirement.?
• NAR to Pay $418 Million: The NAR agreed to that financial settlement.

The Road Ahead: Embracing Change

This settlement signifies a shift in the industry, and it's important to embrace change. However, here are a few things I’ve been thinking about:

• Buyer burden: For all intents and purposes, the bottom line up front here is that this settlement actually makes things more difficult for the homebuyer.? There will be a trend towards sellers refusing to pay buyer agent commission wholly or partly and this will greatly affect buyers.? Specifically first time buyers and those using the VA loan.? Why?? First time buyers are typically those who need the most guidance, direction and assistance from a buyer’s agent.? They are also the most cash strapped.? So now, we’ve placed the burden of the down payment, closing costs, inspections, appraisal and most likely the agent commission at their feet. This will lead to more buyers choosing to go at it unrepresented.? That won’t end well.? We already tried that in this country.
• And why did I mention VA buyers?? Well, according to the current rules of the VA Loan program, these buyers are prohibited from directly paying for a buyer agent at all.? So as more and more sellers refuse to pay buyer agent commissions (and yes this will happen with time), the buyers using VA Loans will have a tougher time with those negotiations and will lose the property on that point of contention.? The VA is going to have to fix their policy somehow.? I’ll give you one guess on whether I think this will happen quickly.
• Buyer agent free work: I wrote a newsletter post a while back regarding how much Realtors work for free (https://www.dhirubhai.net/posts/jeromeinrealestate_more-often-than-not-your-real-estate-agent-activity-7151955250592006145-zO3Z?utm_source=share&utm_medium=member_desktop).? That’s going to end.? People, we are running businesses here.? Much of that “free” work buyer agents do was predicated on the fact that if they work their asses off for nothing up front and somehow got you to the finish line, there was a 99% chance the seller side would be able to compensate.? As the months and years go by and this probability diminishes… so will the free work.? More agents will charge buyers per hour, up front flat fees due to consultations, pay per showing, etc.? So buyers… do your research and dig into those buyer agent interviews and exclusive right to buy contracts.
• Home prices: Raise your hand if you think home prices will decrease because of this settlement!? If you thought about raising your hand… good luck with that. I can see it now – Seller decides to lower the price of their home because they’re saving so much money on agent commissions.? Really?? I’m not even gonna break this down for you because if you put even 30 seconds of thought into it you’ll realize how ridiculous it sounds on a large scale.? When in the history of mankind have large numbers of people decided voluntarily to make less profit?
• And in case you’d never thought about it before… who REALLY pays for everything in a property transaction?? I don’t care how many ways you slice it and what we put on our real estate net sheets, having buyer and seller sides, etc.. the buyer is the one coming up with the money.? Period.? Whether it’s a loan or it’s cash.. It’s the buyer. All the seller’s profit is coming from the willingness of the buyer to find that money.? We are literally lowering the affordability of homes with this, which leads me to my next point.
• More renters: The ultimate end game here is quite simple.? These lawsuits which forced the settlement, will place further undue burden on homebuyers, forcing a larger percentage of them to give up on home ownership, leading to a greater percentage of renters.? Don’t worry - renters have 40x less net worth than homeowners so the trend of the United States growing the divide between the haves and the have nots is in no danger of drawing down.? This settlement, with time, will simply keep things going as normal.
• I had AI (Google Gemini) create that title pic because I do believe apartment complexes are where this is all headed. Who owns most of those? Follow the money.

Jerome Hanson, Broker/Owner, Hanson Realty