National Association of Realtors Settlement What Is It About and What Does It Mean?

To bring everyone up to speed, the National Association of Realtors (NAR) has been involved in multiple lawsuits all of them revolving around antitrust issues. At one time the NAR and its member MLS organizations did everything they could to keep real estate commissions at a certain level with a requirement that a portion of the seller’s commission be paid to the buyer’s broker. The status quo also had the seller paying the buyer broker commission without any negotiations taking place between the seller and the buyer’s broker, it was a fixed rate posted in the MLS for all the buyer brokers to see. With this system, buyer brokers had the ability, if they so choose, to only show houses with the highest commissions and forego those with lower commissions. This practice had the potential for the buyer’s broker to not show their client all the houses within their price range, but just the ones that would pay them the most. Previous studies have shown that this scenario is not just theoretical but does actually take place. Houses with lower offered commissions were proven to remain on the market longer than those with higher commission offers to buyers brokers.

The NAR settlement prohibits the MLS from communicating buyer broker commissions. Now this doesn’t mean that buyer brokers can’t be paid, it just means that they will have to do one of two things, request and negotiate compensation for their efforts through other real estate professionals or receive payment directly from the buyer, or both. I personally have no issue with this as the commercial brokers have been successfully doing it this way for years.

The NAR settlement also mandates that buyers have broker agreements with potential buyers, this one was a bit of a shock. I’m not sure that potential buyers are going to be all that excited about making a commitment to a buyer’s broker, especially if the broker is not known to the buyer. We will have to see how that rule plays out.

So what will this do to the industry? I believe the first fall out will be a reduction in the number of brokers, according to a report by CNN Business the amount of licensed brokers could be reduced by up to half of the 2 million that are currently on the roster. This massive reduction will also severely affect brokerages whose business models rely heavily on charging brokers desk fees, compliance fees, technology fees, yearly fees, the list goes on, there simply will no longer be enough warm bodies to pay all the fees and keep those brokerages afloat.

So will commission rates drop? That remains to be seen, but the fact that sellers are no longer required to pay buyers brokers, could have an effect. Commissions are and should always be negotiable, if you are going to hire a listing broker whose previous work shows that they put out minimal effort and obtain minimal results, then there is a price for that, if you hire a broker and a brokerage that is known for exceptional work and always exceeds client expectations, then there is a price for that as well. Real estate transaction actions can be complicated and also have a lot of moving parts, so a great broker will always be worth the money.

Questions, Concerns or you just want to buy me a beer?

Please feel free to reach out anytime Rob Swan, Swan Realty

575-613-4243