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Dive Beyond the Headlines-The Truth About the NAR Settlement...The Media Is Getting the NAR Settlement All Wrong

On Friday (3/15/2024), the NAR announced a proposed settlement (to Sitzer/Burnett and various other “copycat” lawsuits) that included changes to the way commissions are advertised and paid. Here’s a sample of the headlines major media outlets ran with:

 

“Powerful group agrees to slash commissions to settle lawsuits.”New York Times, 3/18/2024

 

“National Association of Realtors to cut commissions to settle lawsuits.”CBS News, 3/18/2024

 

“The NAR real estate settlement could make your next home more affordable.” MSNBC, 3/18/2024

 

“The 6% commission on buying or selling a home is gone after Realtors’ association agrees to seismic settlement.” CNN, 3/15/2024

 

Wrong. Wrong. Wrong. And wrong.

 

The NAR never set commission rates. So naturally, the NAR hasn’t agreed to cut commission rates. What has changed is the way that Americans will pay for real estate agent commissions, and the conclusions that the media have drawn about this are often completely wrong.

 

The NAR Settlement

The National Association of Realtors has agreed to pay US$418 million to the plaintiffs over the next 4 years. More importantly:

  • The NAR will prohibit offers of buyer’s agent commission rates on the MLS. Previously, this was required. This change is supposed to happen around mid-July. This will effectively “decouple” buyer and seller commissions.

  • But sellers will still have the option to pay for some/all of the buyer’s agent commission, this will just have to be offered & negotiated outside of the MLS.

  • Buyer’s agents will be required to have a signed representation agreement before they can show would-be buyers properties that are listed on the MLS. This was a widespread practice before the NAR settlement.

  • An individual will no longer be required to be an MLS member to collect real estate commissions.  

This settlement must be approved by the court, the DOJ, and perhaps the FTC. So it could get rejected or amended. In the absence of details about how all this will actually work, there are a great number of uncertainties.

 

What Does this Mean for Residential Real Estate?

 

In our ever-evolving residential real estate landscape, a seismic shift is on the horizon that promises to redefine the home buying and selling experience for all parties involved. Let's delve into what this shift entails and its implications for buyers, sellers, and industry professionals.

 

  • Increased Costs for Buyers: Historically, homebuyers have enjoyed the privilege of paying a 0% commission upon purchase. However, a new trend is emerging where buyers might face commission charges (1%, 2%?), adding thousands to their entry cost. This move not only heightens the financial barrier to homeownership but also ignites a political debate, particularly poignant in an election year. The question arises: Are we moving away from our goal of facilitating homeownership, especially for Millennials and lower-income groups?

  • Political and Economic Implications: This change seems to disproportionately benefit the Boomer generation, who traditionally paid 0% at entry, and now face lower exit costs, thereby exacerbating the generational wealth gap. Sellers, foreseeing the July implementation of new commission structures, may choose to delay their sales to retain a larger share of the proceeds, a strategic move for those looking to maximize their gains.

  • Market Dynamics: We anticipate a reduction in total commission rates from approximately 6% to 4–5%. However, given the significant rise in home prices, the commission pool remains substantial. This scenario may lead to a consolidation in the realtor market, with a potential 25% reduction in realtor numbers, leaving room for more experienced realtors to dominate and gain market share.

  • Innovation in Representation: The evolving market conditions pave the way for innovative models in buyer's agent representation. Recognizing the value of buyer's agents, we may see the introduction of a la carte services, financed by various stakeholders.

  • The Role of Listing Agents: The shift in commission structure could amplify the power of listing agents and brokerages, reminiscent of past industry challenges. The strive for brokerages to represent both sides of a deal may revive conflicts of interest, underscoring the need for a balanced approach to representation.

  • Economic Models Under Pressure: Revenue models based on buyer referrals, such as Zillow's, may face challenges due to the reduced commission revenue, impacting the sustainability of lead generation services.

  • Emerging Trends: The rise of the "Your listing, your leads" model, highlights a strategic shift towards empowering listing agents to leverage buy-side opportunities, setting the stage for a competitive advantage in the marketplace.  

As we navigate these changes, our commitment to providing exceptional service and informed guidance remains unwavering. These developments present both challenges and opportunities, requiring us to adapt, innovate, and anticipate the needs of our clients. Together, we will continue to shape the future of residential real estate in Maricopa and Pima counties.



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