Real Estate Shake-Up: NAR Settlement Spurs New Rules for MLS and Agent Compensation

Real Estate Shake-Up: NAR Settlement Spurs New Rules for MLS and Agent Compensation

On August 17, 2024, sweeping changes hit the real estate industry as a result of a significant lawsuit settlement involving the National Association of Realtors (NAR). The lawsuit accused NAR of policies that artificially inflated real estate commissions, leading to the $418 million settlement. The core issue revolved around how commissions were set and disclosed in property transactions. As part of the settlement, Multiple Listing Services (MLS) will no longer display the compensation sellers offer to buyer's agents. This policy, which once dictated transparency in agent commissions, is now shifting off-MLS, meaning agents and brokers must directly negotiate their fees—potentially complicating transactions.

Furthermore, real estate agents are now required to secure written agreements with buyers before showing properties, introducing new protocols aimed at safeguarding agents' commissions. While this move seeks to protect agents from being cut out of deals, it also places additional administrative demands on real estate professionals, particularly part-time agents, who may find the new procedures burdensome.

Key Takeaways:

1. MLS Transparency Reduced: MLS platforms will no longer show seller-offered compensation for buyer's agents. This change will likely reduce transparency in commission negotiations, making it harder for buyers and agents to know what to expect in advance.
2. Written Agreements Mandatory: Agents must now enter written agreements with buyers before property showings, ensuring clarity on compensation and protecting agents from being bypassed in deals.
3. Increased Competition: These changes could drive more competition among agents as they negotiate their fees directly with buyers and sellers.
4. Potential Impact on Part-Time Agents: The increased administrative burden may push part-time agents out of the industry, as they might struggle to keep up with the new requirements.

Analysis:

This settlement and the resulting changes mark one of the most significant shifts in the U.S. real estate market in recent history. The lawsuit, Burnett v. National Association of Realtors, focused on NAR's commission-sharing policies, which plaintiffs argued inflated commissions by discouraging agents from showing homes that offered lower commissions. By removing the MLS compensation disclosure requirement, the settlement effectively dismantles this practice, giving home sellers and buyers more freedom to negotiate commissions without the preset structure that previously guided transactions.

For agents, the introduction of mandatory written agreements prior to showings adds a new layer of formality to transactions. While this provides protection against losing commissions, it also demands more diligence and could slow down the homebuying process. Additionally, smaller or part-time agents may find it difficult to navigate these new demands, leading to a potential exodus from the industry. On the flip side, these changes could empower consumers, who now have more negotiating power in determining the compensation for the agents they hire.

Did You Know?

• The National Association of Realtors represents over one million real estate professionals across the United States, and this settlement affects nearly all of them.
• The $418 million settlement will be paid over four years, and despite the significant financial hit, NAR has confirmed that it will not increase membership dues for 2024 or 2025.
• The Burnett case is just one of over 20 similar lawsuits filed against NAR, reflecting growing scrutiny over real estate commission practices nationwide.