The NAR Settlement: What does it mean for you?

By Rob Jafek, Principal | Boomerang Capital Parnters, LLC On March 15, 2024, the National Association of Realtors (NAR) announced a settlement to resolve a class-action lawsuit brought by home sellers complaining to the Department of Justice (DOJ) that commissions were inflated. The settlement still has to be approved by a court but is expected to make an immediate impact. It’s interesting to note that this isn’t the first time the DOJ and NAR have butted heads.  The core issue is whether the NAR’s practices and policies are heavy-handed and anti-competitive. The NAR is doing some things right, such as developing the MLS and standardizing policies, such that almost 9 in 10 homes in the US go through the NAR and its affiliates. But given that US real estate commissions are amongst the highest in the world, it does seem to come at a price. In November 2020, the NAR reached a settlement with the Department of Justice (DOJ) to resolve antitrust concerns related to its policies regarding the display and sharing of property listings via the Multiple Listing Service (the MLS). That settlement came about after an investigation by the DOJ into the NAR’s rules that resulted in limited competition among real estate brokers. The DOJ was particularly concerned about the NAR’s rules that restricted the ability of brokers to offer lower commission rates or rebates to consumers, as well as its policies related to the display and sharing of property listings on online platforms. As part of that settlement, the NAR had agreed to make several changes, which included:

• Greater transparency: The NAR agreed to provide greater transparency to consumers regarding broker commissions. This includes allowing brokers to offer buyers a greater range of commission options and disclosing on its website whether listings include buyer broker commissions.
• More flexibility for brokers: Brokers are now allowed to offer homebuyers cash rebates, credits, or other incentives. This gives brokers more flexibility in their pricing models and allows for increased competition.
• Changes to MLS rules: The NAR agreed to change its rules related to the display and sharing of property listings on multiple listing services (MLS). These changes aim to promote competition and innovation in the real estate market.
• Training and compliance: The NAR agreed to provide training to its members regarding the new policies and to establish a compliance program to ensure that members adhere to the settlement terms.
• Five-year duration: The settlement is set to last for five years, during which the NAR will be subject to oversight by the DOJ.

Are brokers and realtors all bad? Are they engaged in practices that are illegal or unethical? NO!  While there certainly are good and bad individuals, this is more of a structural problem.  The current complaint centered on the  “Clear Cooperation Policy” or “Participation Rule,” which required listing agents to offer compensation to buyer’s agents and is seen as inflating commissions. We have found many of these real estate professionals work very hard and come up with innovative ways to connect buyers and sellers. We rely on their expertise almost every day to share opinions of value and to find ways to smooth transactions. We think those good realtors will thrive in this new environment where they have the freedom to negotiate a fair commission and not be forced to split it with another realtor. The expectation is for commissions to go down by about 30%^[1]. And that expectation was expressed by investors in Zillow (Z) and Redfin (RDFN), who took those stocks down by about 10% on the announcement. On the plus side, realtors can collect their fair share of a fair commission. And maybe some homebuyers will return to the market, as well as a few more home sellers (Florida has reported more home listings because of the decreased commissions), because of these changes. But with these changes in mind, be aware, the next time you buy or sell a home, you’ll have a new thing to negotiate and figure out.  Given all the pluses, this shouldn’t be a big deal, but make sure to ask and allow a bit of time to figure this out with your agent. ^[1] https://www.nytimes.com/2023/10/31/realestate/nar-antitrust-lawsuit.html