In March the National Associations of Realtors (NAR) settled a lawsuit which resulted in new policy changes to how real estate transactions are handled. The law suit was heard in the United States District Court of Missouri and though the full suit is public record, many consumers may not be familiar with the real estate process, so we explained the NAR settlement 2024 in simpler terms.
What is the NAR settlement?
The settlement alleged that the NAR was unethically acting to boost real estate agents’ commissions by pushing buyers towards large sale real estate homes. Sellers of homes sued the NAR for keeping real estate agent commission unreasonably high.
The internal real estate website has displayed the commissions in the home listings. This settlement will no longer allow the commissions to be shown and other compensation information will be removed. This way, when a realtor shows a house to a buyer, it won’t be based on how much of a commission they will receive.
When does the NAR settlement go into effect?
The NAR settlement was announced in March and the NAR settlement effective date was August 17, 2024.
What are the key provisions of the NAR settlement?
The NAR released a short summary on all the key facts and changes from the settlement which can be found here. Some of the changes pertain to what information can be shown in the MLS website, which is a Multiple Listing Service website used by real estate agents used to find real estate listening for sale by other realtors. The new provisions focus on changes in MLS and new real estate agent rules, especially for the buying agent.
One of the new MLS rules is that the commission rate cannot be advertised in MLS. Also, offering and accepting offers of compensation cannot be a requirement of MLS usage and membership.
The settlement also allows room for the buyer to negotiate commission rates with their real estate agent. For example, since the commission rate is not set on the website, the buyers can insist on paying flat fees. Now, when looking to buy a home, the buyer will have to sign a buyer agency agreement contact outlining the fees.
This confirms that they understand the role the agent will have in the transaction and agree to pay the compensation rate that was discussed. These contracts are legally binding and are in place to protect both the agent and the customer.
How does the settlement affect real estate agents?
Before the settlement, the seller of the home was the one who paid both relator’s fees for the selling agent and the buying agent. Since the fee would have to be split between the two parties, many people claimed this was causing the buying agents to avoid larger dollar homes because they didn’t want to share a large sum.
Some also claimed, that the buying real estate agents were pushing their customers to higher commissioned sales. This will not necessarily change the commission prices, but it could result in a more competitive, fair real estate market. Axios predicts that with the NAR settlement in 2024, realtor commission will likely fall to 1%-1.5% per agent. With the new rules, an agent may not get the same commission percentage they would have gotten previously.
Now the customers have more negotiating power, so the agent’s fees may vary among each transaction. The agent may now have to look more thoroughly at housing listings they are showing to clients because per the new MLS rules, they are no long able to filter results on the MLS by commission rates and they cannot view the commission rate on each house.
This makes the agent’s job more impartial and research-intensive to find ideal houses for their clients without filtering based on fees. The biggest benefit to the real estate agent is the new buyer agreement contract that legally protects the agent’s fees. Once compensation is agreed upon, a client cannot go back to negotiate fees or change the terms of the transaction.
How can consumers benefit from the NAR settlement 2024?
This settlement will offer more consumer protection and predominately benefit the home sellers and buyers the most. The home sellers benefit because they will get to keep a little bit more money from the sale of their house.
Home buyers now have the ability look for a real estate agent for buying, based on that realtor’s commission. A buyer can shop around real estate agents based on their commission rates. The buyer may be able to go with an agent with a lower commission, where previously this was not as easy to do. This will keep rates among realtors competitive because they have to adjust the commission rate and buyer agreement terms to attract customers.
The agents will have to work harder to retain clients. Since buyers have the option to shop around agencies based on commission rates, this also gives the buyer negotiating power among real estate agents. If I buyer is not happy with fees, they can go to another agent or negotiate down the rate. Because of this, once the buyers select a real estate agent and agree to a rate, they will have to sign a buyer agency agreement contract before touring any homes.
This helps protect the agent so they do not waste their time or make a deal with someone who changes terms during the sale. It is also a learning opportunity for buyers to become more educated on the process and the agreement outlines what fees are expected ahead of time.
Conclusion
With the compensation amounts being removed from the internal MLS database, the goal is that realtors will not just be showing houses based on how much money they stand to make, they will be showing houses based on the consumer’s needs. And on the contrary, a consumer can trust the agent they went with for buying a home, has their best-interest in mind, not just the agent’s own financial gain.
Overall, this opens the door to more buying options that may have otherwise been over-looked by an agent due to a low commission fee. And for sellers, this opens the door to more viewers and tours on their home regardless of what the selling commission rate was.
The goal of this new settlement is to make the real estate buying and selling process as in-partial as possible. It is restoring trust to the consumers in this process, and being as transparent as possible with fees and the buying/selling process. At first the new rules from the NAR settlement may take some time to get used to, but overall, it is benefiting home owners.
