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The Future of Realtor Commissions: Understanding the NAR Settlement

Background.

In October 2023, a federal jury in Missouri found that the National Association of Realtors (the “NAR”), along with several brokerages, conspired to inflate realtors’ commissions. The findings concluded that the NAR’s cooperative compensation policies and other policies restricting the negotiation of commissions incentivized buyers’ agents to steer clients toward homes with higher commissions and resulted in sellers paying inflated buyer’s agent fees. In March 2024, the NAR settled the lawsuit agreeing to pay $418 million in damages and make significant changes to their policies.[1]

The biggest take-aways from the settlement are that effective August 17, 2024, home sellers are no longer automatically responsible for paying commissions to both their own agent and buyer’s agent, and a seller’s agent can no longer specify on a Multiple Listing Service (“MLS”) how much the buyer’s agent will be paid. Instead, the commission to buyer’s agent will be negotiated separately between buyer and buyer’s agent.

The NAR’s Policy Changes.

The below policy changes were agreed to by the NAR’s leadership as part of the settlement:[2]

  • Eliminate and prohibit any requirement of offers of compensation on an MLS.
  • Retain, and define, “cooperation” for MLS Participation.
  • Require an MLS to eliminate all broker compensation fields and compensation information on an MLS.
  • Require an MLS to not create, facilitate, or support any non-MLS mechanism (including by providing listing information to an internet aggregator’s website for such purpose) for Participants, Subscribers, or sellers to make offers of compensation to buyer brokers or other buyer representatives.
  • Prohibit the use of MLS data or data feeds to directly or indirectly establish or maintain a platform of offers of compensation from multiple brokers or other buyer representatives.
  • Reinforce that MLS Participants and Subscribers must not, and MLSs must not enable the ability to filter out or restrict MLS listings that are communicated to customers or clients based on the existence or level of compensation offered to buyer’s broker or the name of a brokerage or agent.
  • Require compensation disclosures to sellers, and prospective sellers and buyers.
  • Require buyer’s broker to enter into a written agreement with the buyer regarding commissions/compensation prior to touring a home.

Impact on Buyers and Sellers.

Historically, sellers paid the entire commission, commonly in the range of 5% to 6% of the sale price, to their agent who then split that fee with the buyer’s agent upon making the sale. Both the commission and the split would be listed on MLS.

Sellers now decide what, if anything, they would like to offer to buyer’s agent. A seller can decide at the time of listing or at the time of negotiation what amount, if any, to offer buyer’s agent. Seller’s agent must disclose to seller and obtain prior approval for any payment being offered to buyer’s agent. This disclosure must be made in writing and specify the amount or rate of such payment. Compensation paid by a seller to their agent remains fully negotiable.

In accordance with the NAR’s policy changes, buyers must now sign a written agreement with their agent before touring a home. The written agreement must include: (i) a specific and conspicuous disclosure for the amount or rate of compensation to buyer’s agent and how this amount will be determined; (ii) the compensation to buyer’s agent must be objective (e.g., a set dollar amount, fee based, percentage or hourly rate); (iii) a term that prohibits the agent from receiving compensation for brokerage services from any source that exceeds the amount or rate agreed to in the agreement; and (iv) a conspicuous statement that agent fees and commissions are fully negotiable and not set by law.

Looking Forward.

Since sellers are no longer required to pay buyer’s agent, the cost of selling property could be much lower. Sellers can decide at the time of listing or at the time of offer negotiation how much, if any, they are willing to compensate buyer’s agent. If a seller chooses not to offer a buyer’s agent commission upfront, it may be something that comes up in purchase and sale agreement negotiations. Sellers who choose not to offer a buyer’s agent commission should save money from the cost of sale, however, may limit the number of potential buyers can afford to buy their property.

On the flip side, buyers may be responsible for paying their agent directly, which can be financially burdensome by increasing out-of-pocket costs at the closing. Especially since buyers now having to agree on a compensation method with their agent, before knowing if a seller will cover those costs. Buyers who have historically not paid a commission, are likely to pay more under these policy changes. The greatest impact is to be felt by first time homebuyers who do not have the sale of another residence to help balance out the commissions.

Historically, buyer’s agent did not have to make any explanations to buyer as to receiving a 3% commission, which was paid by seller. Now, buyer’s agent will have to make it much more clear to buyer where the value is added and why such a commission is due.

Overall, the new policies by the NAR require increased transparency in agent’s fees and services. Agents now need to provide clear and detailed information about the fees they charge and the services they offer. It is unclear still what the fallout will be from the changes in policy.  Buyers, Sellers and their agents are trying to navigate this new landscape. Perhaps we may start seeing a fixed fee structure for buyer agents. Perhaps the market dictates a smaller percentage commission to buyer agents. We have seen a couple of examples of sellers increasing the purchase price by the amount of the buyer commission, allowing a buyer to roll the commission into the price of the property and finance the whole. Begging the question how this will impact already inflated home prices.

Time will tell how much pushback sellers are going to give in not offering to pay buyer’s agent commission and similarly the willingness of buyers to pay a large commission to their agents.

[1] Gibson, et al. v. National Association of Realtors, et al. (W.D. Mo.) and Umpa v. National Association of Realtors, et al. (W.D. Mo.)

[2] NAR Practice Changes to Take Effect Aug. 17, REALTOR Magazine (May 3, 2024) https://www.nar.realtor/magazine/real-estate-news/nar-practice-changes-to-take-effect-august-17

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About The Author

A professional headshot of David Webster in front of windows.

David M. Webster

David is a member of the firm’s Business & Corporate Law Group. David has experience assisting large and small clients with… Read More

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