Last month in March, the National Association of Realtors (NAR) announced a $418 million settlement to address nationwide litigation concerning claims from home sellers regarding broker commissions. The whopping $418 million settlement and the changes that it is likely to usher in have prompted some to speculate that real estate agents likely stand the risk of becoming obsolete.
Important Changes Brought About By The Settlement
The National Association of Realtors is likely to continue to serve as the most reliable partner for countless Americans who are pursuing the American dream of homeownership.
Due to the settlement, sharing of compensation offers on Multiple Listing Services (MLS) – platforms real estate brokers use for viewing properties that are available for sale – will be prohibited. Additionally, MLS participants will have to mandatorily formalize agreements in writing with their buyers.
Changes Will Come Into Effect Soon
The changes brought about by the settlement will come into effect from anywhere around mid to late-July 2024.
In a conversation with The New York Times, Norm Miller, a real estate professor emeritus at the University of San Diego said, “This will blow up the market and would force a new business model.”
Commission Rates Are Not Established By NAR
It is crucial to emphasize the fact that the National Association of Realtors does not set commission rates. The proposed settlement is not going to alter this in any way.
Commission rates will continue to remain negotiable among buyers, seller, and their respective brokers.
The “Cooperative Compensation’ Rule
The “cooperative compensation” rule has been the focal point of many legal disputes. This rule requires the selling brokers to specify on every single listing the amount of compensation they are offering to the buyers’ brokers.
The amount listed can vary. It can even be zero whenever applicable.
Consumers Have Options
Consumers still have various options for compensating the brokers they engage with. Some consumers prefer to pay a fixed fee for the services of their broker. Alternatively, sellers may choose to provide a concession on their sales price. Buyers can use this concession to pay their brokers.
There are also cases where listing agents offer a slice of their own compensation to the buyers’ agents. Such offers cannot be made through an MLS though.
Cooperative Compensation Isn’t Going Anywhere
Cooperative compensation, wherein the compensation paid by a seller to their broker is shared to cover the costs of a buyer broker’s services, will remain an important option for consumers across all transactions.
This is particularly important in the case of middle and lower-income homebuyers.
Cooperative Compensation Is Vital
The practice of cooperative compensation is nothing less than vital because it helps alleviate the financial burdens of individuals who may have already gone through a considerable amount of struggle to save for a down payment.
In essence, consumers will continue to retain the right to choose the type and scope of real estate guidance they desire. It is also up to the consumers to decide the amount they want to pay and the manner in which they want to compensate their brokers.
Realtors Are Relevant and Valuable Even in The Digital Era
Throughout history, almost 90% of homebuyers have chosen to collaborate with a real estate agent or broker. These stats are unlikely to change anywhere in the foreseeable future.
Even in the digital age when information is usually just a click away, realtors provide valuable services and the market is willing to compensate them for it.
Impact On First Time Homebuyers
The settlement came in the wake of numerous accusations against the National Association of Realtors for artificially inflating home sale commissions.
Real estate agents and economists alike have expressed their concerns with regards to the impact on first-time homebuyers, particularly on individuals hailing from moderate to middle class backgrounds. This includes many Latino and Black families.
The Implications of The Settlement May Become Palpable After a Few Years
According to Stephen Brobeck, senior fellow at the Consumer Federation of America, “The residential real estate marketplace will take some time, perhaps several years, to fully process the implications of this settlement.”
Brobeck added, “But over time more, agents will feel free to offer different types of compensation and more consumers will comparison shop and negotiate commissions in a more transparent marketplace.”
Impact of The Rule Alteration
The suggested rule alteration will allow the individual home sellers to negotiate a direct agreement with the buyers’ agent while keeping things outside the MLS platform.
This essentially creates a loophole for brokers and real estate agents to keep everything the way it has been until now.
Additional Paperwork
From mid-July onward, prospective homebuyers planning to tour a property listed on an MLS platform will have to sign additional paperwork. This paperwork is going to be an agreement with their agent.
The agreement will give the buyers an opportunity to negotiate the kind of services they want to receive from their agent and exactly how much they prefer to pay for it.
A Major Shift May Be Underway
The requirement to sign the agreement is likely to create a significant change in the home buying and selling processes for Americans.
This measure was introduced as part of the settlement resolving the class-action lawsuit filed by home sellers against NAR.
The Real Estate Market May Become More Competitive
City University of New York real estate professor Sophia Gilbukh said, “I think that will make the industry more competitive.”
Gilbukh added, “The prices are going to be lower, but also there are going to be fewer people who are just kind of lingering around [real estate sales], who have their license in hopes of maybe making one deal a year, people who have no experience and who are not really helpful for the clients anyway.”
