The National Association of REALTORS® announced a $418 million settlement to resolve allegations of conspiring to inflate agents’ commissions, which could have artificially increased home costs. The settlement aims to address concerns about transparency and competition in the real estate market.

In what could be an unprecedented shift for the real estate industry, brokers and investors alike will be affected by the news resulting from the recent National Association of REALTORS® (NAR) agreement to resolve antitrust litigation accusing brokerages of inflating sales commissions via settlement. 

National Association of REALTORS® Reaches Settlement Agreement

The agreement resolves claims brought on behalf of home sellers related to broker commissions against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or below. The settlement was announced on March 15th, 2024, and is still subject to court approval.

The lawsuits against NAR centered on its MLS cooperative compensation rule, which required offering a commission to the buyer’s agent. Critics argued that this rule reduced price competition, leading to inflated commissions and home prices. While NAR denies any wrongdoing in connection with the Multiple Listing Services (MLS), it agreed to settle the lawsuits to benefit its members and consumers. According to NAR, “the cooperative compensation model rule (MLS Model Rule) was introduced in the 1990s in response to calls from consumer protection advocates for buyer representation.”

How will buyers and investors be impacted by the new NAR settlement?

The settlement, if approved by the court, will bring about major changes in the real estate industry. Advocates suggest that requiring buyers to negotiate with their agents directly could provide more flexibility for buyers to choose the services they need and avoid paying for unnecessary ones.

Most Experts Predict Lower Costs for Buyers

According to The New York Times, the settlement could mean US commission costs drop possibly by as much as 30%, taking commissions from about 3% per agent down to 2% or less. Real estate expert and CEO of Clever Real Estate, Luke Babich, told U.S. News that he expects buyers to have more of a menu of services once the new rules go into effect, leading to a shift in pricing structures and service offerings in the industry.

“You could pay a small fee for an agent to do an on-demand showing for you, or you could pay 0.5% to 1% if you just want help with negotiations – and maybe that’s all provided remotely,” Babich says. “You could pay 1.5% to 2% for an agent who will commit to a certain level of availability and take you to regular showings. We’ll see a wider range in pricing for different service levels.”

Some Worry First-Time Homebuyers will Suffer:

In an op-ed with USA Today, Realtor Emily Ross expresses that most first-time homebuyers won’t know what has happened or what the impacts will be for negotiation. She writes that “Seller-paid buyer broker commissions were created with equitable rights to good representation in mind. Specifically, so that first-time buyers could afford to have a fair negotiation, instead of being swept under the rug by a seller’s agent signed to protect the seller (a law in most states).” 

Ross continues by predicting that all that buyers will have to do more work to buy a property in the future and may have to meet with key players in the buying process (inspectors, contractors, ect) without their agent there to offer expertise and guidance. 

How will brokers be impacted by the new NAR settlement?

Should the settlement agreement be court-approved, the NAR would pay $418 million over approximately four years. Additionally, they have agreed to put a new MLS rules in place. 

Brokers will specifically be affected in a few ways:

  • Offers of broker compensation can no longer be communicated via the MLS
    • Consumers can pursue off-MLS through negotiation with real estate professionals
  • MLS participants working with buyers will be required to enter into written agreements outlining the exact services provided and compensation expected with their buyers.
    • This has been encouraged as best practice by NAR, but was not previously a requirement.

Changes to the MLS rules will go into effect in mid-July 2024.