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The real estate industry was rocked Friday by news that the National Association of Realtors had reached an agreement to make sweeping changes to the way homes are bought and sold in the U.S. to resolve lawsuits facing the industry.
The changes are widely expected to increase transparency and complexity in how buyer agents are paid, with some industry experts saying commissions and even house prices could fall as a result.
NAR said it worked with plaintiffs in multiple lawsuits filed across the country to develop a series of reforms and pay a $418 million fine to protect the organization and two-thirds of its members from future litigation. .
“Commissions are going to become more transparent as a result of all this, which will also put downward pressure on commissions,” said Stephen Brobeck, senior fellow at the Consumer Federation of America, which has long called for changes agreed to in the settlement. similar reforms. .
Steve Brobeck | Consumer Federation of America
“This will ultimately reduce costs for consumers,” Brobeck said. “In fact, it should even lower housing costs.”
As part of the proposed settlement, which still requires court approval and could be subject to review by the Justice Department, NAR agreed to develop a rule by July to eliminate compensation offers in the Multiple Listing Service.
Under the framework of the settlement, which has not yet been publicly released or filed with the court, MLS participants will be required to work with buyers to enter into a written buyer representation agreement before touring a home.
It’s unclear which cases are included in the proposed settlement. NAR noted that some lawsuits are still pending, suggesting Friday’s settlement does not absolve brokers and franchisees from the threat of lawsuits they face in nearly two dozen cases filed across the country in recent months.
Representatives for NAR and its legal team did not respond to requests for comment Friday. However, many welcomed the news as a positive change that could clear the dark clouds hanging over the industry.
Toby Schifsky | Vice President, Kaplan
“On a scale of 1 to 10, the National Association of Realtors’ decision to shift the burden of buyer’s commissions from sellers to buyers represents a huge change,” said Toby Schifsky, vice president of real estate education at Kaplan. “This new landscape means a steeper climb for all agents who have to prove their value to potential clients.”
1 million real estate agents protected
In the outline, NAR shared a framework for upcoming rule changes that will be enacted in mid-July. The organization also clarified who was covered and, specifically, who was not.
More than 1 million members, approximately two-thirds of the organization’s membership, received full protection from the plaintiffs in the case. It includes all state and local REALTORS organizations and all multiple listing services wholly owned by REALTORS organizations.
All brokerage firms with less than $2 billion in residential transaction volume in 2022 that have NAR members as principals are also covered.
Marty Green | Principal Polunsky Beitel Green
Notably, American HomeServices was not included in the proposed settlement, and the company is steadfast in its decision to fight in court. Some believe a settlement may be imminent.
“I expect you will soon see a reconciliation that includes them,” said Marty Green, head of mortgage law firm Polunsky Beitel Green. “It just doesn’t make any sense for them to go it alone.”
A representative for HomeServices declined to comment, saying the company had not yet seen a copy of the proposed settlement.
The settlement is just a fraction of the damages NAR and HomeServices were ordered to pay in the verdict in the landmark commission-setting case called Sitzer | Burnett. The jury ordered the defendants, which at the time included NAR, HomeServices of America and Keller Williams, to pay $1.8 billion in damages, which would automatically triple to $5.3 billion.
It’s unclear which of the nearly two dozen similar cases the proposal would resolve. The NAR refers only to “copycat” lawsuits, noting that litigation will continue in at least one case called “Barton One” filed by Illinois homebuyers.
Edward Zorn, chief counsel for the California Regional Multiple Listing Service, said the buyer’s lawsuit “is not resolved by this.” “But these are very weak cases compared to what happens on the sell-side. That has yet to be determined.”
Despite this, news of the settlement spread throughout major news outlets across the country. Industry insiders say they expect consumers will notice the changes are coming and start asking questions immediately.
Clelia Peters | Times Venture Partners
“This is a very significant move,” said Clelia Peters, managing partner at Era Ventures. “It’s going to impact consumer perception. In this case, I suspect it’s going to make it harder to maintain the status quo.”
The news spread like wildfire
While many in the industry expected NAR to eventually reach a settlement, the news still comes as a surprise and shows how quickly things have changed after being kept under wraps until Friday.
As recently as Wednesday, NAR Chief Legal Officer Katie Johnson plans to tell the CEOs of state and local REALTORS® organizations at a meeting San Diego NAR Events The verdict is “flawed,” and NAR has filed a motion asking the judge overseeing Sizer’s case to rule in favor.
Less than 48 hours later, on the last day of the event, New York Times First reports that NAR’s legal team has agreed to the terms of a proposed settlement that could set the real estate industry on course to revolutionize how homes are bought and sold in the United States
“I think it shocked everyone,” said Andrea Geller, a broker at Berkshire Hathaway HomeServices in Chicago.
After the report was released, word spread like wildfire through the dry fields, and NAR President Kevin Sears sent an email to members with the outlines of a proposed settlement.
Karen Stone | Engel and Volks
Others say this is another example of NAR sabotaging the rollout of important updates.
“My mom told me the news this morning,” said agent Karen Stone of Engel & Volkers in Park City, Utah. “My mother shouldn’t have told me this. The more I think about it, the angrier I get.”
Ultimately, news of the proposed settlement caught many in the industry off guard.
“I really expected this to drag on for a while,” said eXp team leader Kevin Kauffman. “In one sense I’m surprised, but in other ways I’m not surprised. We knew it would be Something happens.”
Once the industry became aware of the fact that a settlement had been reached, experts quickly worked to understand the changes that were coming.
“Leading agents…go read your favorite negotiation book,” NextHome strategy officer Keith Robinson said during Inman’s live broadcast Friday. “Soon there’s a full-blown negotiation coming up, and you have to be good at it. “
Still, many questions remain to be answered.
uncertainty about the future
While the proposed agreement provides some clarity on the future of real estate transactions, there are still many unknowns.
NAR said the proposal would allow sellers and their listing agents to continue to compensate buyers for broker services, but those offers would not appear in the MLS.
What’s unclear is what happens when a seller offers a lower commission than the buyer and their agent agreed to in the buyer’s representation agreement.
Jason Harper | Compass
Compass agent Jason Haber has called for reform of the NAR as an agency and recently launched a competing trade group with agency founder Mauricio Umansky. On Friday, he called for mortgage rules to be changed to allow buyers to finance their own properties. Agent’s Compensation.
“The National Real Estate Association calls on Fannie Mae to immediately increase contribution limits for interested parties so that buyers have the ability to fund their agent commissions,” Haber said.
Also unknown is how quickly, if at all, conversations with consumers and other promised reforms will lead to broader changes in the industry.
Still, analysts at investment banking firm Keefe, Bruyette & Woods said they expect changes to come soon.
“We continue to believe that the ultimate timing of change will come much sooner than many market participants and investors anticipate,” the analysts wrote.
In the weeks leading up to Sitzer’s trial, KBW issued a report The company said analysts expect the total commission pool in the U.S. to fall by as much as 60% if commission sharing is banned.
“We believe disruption to the industry’s commission structure is almost certain,” KBW analysts said at the time.
But many in the industry say they don’t think fewer agents are necessarily a bad thing for top producers, because they can still grab market share with fewer competing agents.
“The industry and NAR were very smart to immediately resolve this lawsuit and get it over with as quickly as possible,” Brobaker said. “As interest rates drop and housing inventory increases, real estate professionals, not just salespeople, real estate professionals It’s going to be a very bright future. Commissions are lower, but sales are up. Because the number of agents, most of whom are inexperienced, will drop dramatically.”
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