NAR Settlement Set to Reshape The Business of Real Estate

Following a landmark lawsuit, the National Association of Realtors (NAR) proposed a settlement that would pay $418 million to home sellers and change the current compensation model for the real estate industry.

The Sitzer v. the National Association of Realtors et al. lawsuit, brought by a group of home sellers in Missouri, alleged that the NAR and several brokerages(1) conspired to keep real estate commissions artificially high nationwide. It argued the commission-sharing model was akin to antitrust and reduced competition.

In the settlement terms, the NAR denies any wrongdoing in the compensation model but outlines changes that may reshape how real estate professionals are compensated. The settlement still must go before a court for approval.

Understanding Real Estate Fees

The industry’s cooperative compensation model has been in place with the Multiple Listing Service (MLS) since the 1990s. 

Basically, a home seller’s agent would offer a percentage of their commission on the sale to the buyer’s agent who brought the winning offer. The total commission rate, commonly 5-6%, would be split between the seller’s and buyer’s broker. The MLS database advertised the fee paid to the buyer’s agent so agents could see how much they stood to make if their buyers decided to purchase that home.

From the homeowner’s perspective, they saw themselves paying the buyer’s agent, someone who didn’t work for them. On a home sold for $500,000, at a 5% commission, a home seller owed a combined $25,000 to the seller’s and buyer’s agent. At 6%, they owed $30,000. 

Meanwhile, home buyers often paid their agent nothing. Bruce Ailon, Realtor-Attorney at RE/MAX Town & Country in Marietta, GA, says they were often told it cost nothing for the agent to represent them. After closing, both parties would see the agent walk away with a $10,000 to $25,000+ check for what appeared to be 40 hours of work or less.

“The buyer was never explained how compensation works, never allowed to negotiate that fee, and did not understand it as a success-based fee. Agents did not have to justify their value, and most of the time, they did not,” says Ailon.

Terms of the NAR Settlement

The NAR proposal would prohibit the MLS from publishing offers of broker compensation. Instead, agents would enter agreements with the buyer regarding compensation for their services. 

The association would also pay $418 million over four years, which would be divided among recent home sellers. 

These changes are targeted to go into effect in mid-July 2024.

NAR Interim CEO Nykia Wright called the settlement the best outcome given the circumstances, as continued litigation would have hurt the organization’s over one million members. 

Defendants RE/MAX and Anywhere Real Estate already settled at a combined $140 million. On October 31, 2023, a jury sided against the remaining defendants, including the NAR, with a judgment of $1.8 billion with the possibility of up to $5 billion in damages.

What the NAR Settlement Means for Real Estate 

“It’s clear that there will be a shift in the future in the market at the realtor level and how these transactions are made,” says Claudia Cobreiro, Esq., founder of Cobreiro Law in Coral Gables, FL. “Ultimately, commissions have always been negotiable. I just think that historically, the buyer hasn’t been as interested in commissions because the commissions were always historically covered by the seller.”

She points out that removing the commission fee option from the MLS doesn’t mean you won’t pay a commission if you’re a seller. In her conversations with clients, the expected shift is towards using buyer-broker agreements that discuss terms like how the buyer’s agent will be compensated. 

It’s a potential shift echoed by other experts and a practice already used in different states. Preston Guyton, Founder of EZ Home Search, says they’ve been common in South Carolina for years.

“Buyers’ representation agreements are not scary and give [the agent] an opportunity to explain their value,” said Guyton. 

Having a buyer’s agreement is not disruptive, but moving compensation offers off the MLS will rock the boat. Eric Bramlett, Owner of Bramlett Residential in Austin, TX, says agents want to know how they’ll get paid. The change potentially creates a void and is definitely a process change. How it will change the industry is still speculative. We need to let the process unfold and wait for more guidance. 

Next Steps in the Settlement

Cobreiro points out that this is a proposed settlement. As a class action lawsuit, the process differs from a regular lawsuit. There is a comment period during which stakeholders like real estate professionals can provide feedback. That makes the mid-July deadline a little close, in her opinion. 

Ultimately, Cobreiro says we are still determining if this is where we will end up. “Based off what we’ve been able to see, the big major shift is that buyers agents commissions will not be listed on the MLS any longer.”

It doesn’t take away from the value buyer’s agents bring to a real estate transaction, especially for those buying a home for the first time or moving to a new area.

“Buyer’s agents have proven value to consumers for decades, and the majority of consumers in the US strongly prefer buying a home with the help of a buyer’s agent than not,” says Bramlett. “Most people are willing to pay more for good service and a good experience.”

Business As Usual, For Now

As for those currently in the process of buying a home, nothing has changed at the moment. Sellers are still in a market where paying the buyer’s commission is customary, and that rate can still be advertised on the MLS.

However, Corbreiro points out that change is coming. First-time buyers needing more cash or liquid assets to pay a real estate commission upfront may want to start the home-buying process before the market shifts.

Ultimately, though, buyer’s agents have many ways to be compensated for their services. “Even buyers who are not ready right now don’t need to fret,” Corbreiro says. “There are still other ways for this to be addressed in the negotiation stage for offers.”

(1) Additional named brokerages in the lawsuit: Keller Williams Realty, Anywhere Real Estate (formerly known as Realogy), RE/MAX and HomeServices of America