What the $418M NAR Settlement Means for Buyers, Sellers, and Real Estate Agents

The real estate industry gears up for a major shift

A groundbreaking settlement of $418 million was publicized last week by the National Association of Realtors (NAR). The settlement is set to lead the most extensive reforms the US real estate market has seen in a century.

The settlement and multiple rule changes will reshape how millions of buyers and sellers perform real estate transactions, and how the agents representing them get paid.

Here’s what homebuyers, sellers, brokers, and agents need to know about the upcoming changes in residential real estate.

In this article (Skip to...)

• Why the NAR settlement?
• Post-settlement changes
• Impact on buyers and sellers
• Implications for real estate agents
• The bottom line

Why the NAR settlement?

The NAR settlement came about following a federal class-action antitrust lawsuit, Burnett v. National Association of Realtors et al., initiated in Kansas City, Missouri. Last October, a jury ruled in favor of the plaintiffs, agreeing that NAR and major brokerages colluded to artificially raise seller commissions.

The Burnett case represents just one of over 20 similar lawsuits filed by home sellers against NAR and several major brokerages. Sellers argued that the association’s regulations governing properties listed on its affiliated Multiple Listing Services (MLS) unjustly supported agent commissions.

The lawsuit indicated that before the settlement agreement, the regulations discouraged buyer agents from showing certain homes to their clients. This was done by incentivizing agents representing homebuyers to avoid showing their clients listings where the seller’s broker was offering a lower commission to the buyer’s agent.

Subject to court approval, NAR has repeatedly denied any wrongdoing and continues to defend its commission-sharing policies, defining them as a hallmark for consumer protection to ensure representation for buyers.

What are the main changes resulting from the NAR settlement?

As part of the settlement, NAR agreed to no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent. Moreover, MLSs must eliminate any fields indicating broker compensation, and agents cannot be compelled to join MLSs to transact or receive payment.

The settlement prohibits NAR from instituting any regulations allowing a seller’s agent to determine compensation for a buyer’s agent, alongside awarding damages. The rule change leaves it open for individual home sellers to negotiate such offers with a buyer’s agent outside of the MLS platforms, though the home seller’s broker must disclose any such compensation arrangements.

Under the settlement agreement, MLS members dealing with buyers must enter formal representation agreements with them, effective July 2024, to ensure homebuyers know what their agent will charge them for their services. NAR continues, as it has done for years, to encourage its members to use buyer brokerage agreements that help consumers understand exactly what services and value will be provided, and for how much.

While some analysts say that a major change resulting from the settlement is that homebuyer costs will be driven down significantly, others disagree.

Brad Nix, CEO of Path and Post Real Estate, says, “I don’t expect housing to become more affordable. If costs are reduced, then sellers are likely to just pocket the extra savings.”

How the settlement impacts home buyers and sellers 

According to Nix, “Every person connected to a real estate transaction will be impacted by the changes of the lawsuit settlement. Some more than others.”

Would-be homeowners, however, may find themselves at a disadvantage. For some homebuyers, it may be more difficult to purchase a home.

“First-time buyers may have a more difficult journey. They have the least experience, often need the most help, and yet have the fewest resources to leverage, says Nix. “We advise consumers to research deeper and interview more to be confident you choose the right agent to help you on your journey.”

Nix goes on to say, “Buyers will have more control over who they hire and how their agent is compensated. Sellers will have more options on how to offer compensation and concessions to incentivize buyers.”

Realtors may now be able to compete on commissions, allowing prospective buyers to shop around on rates before they commit to buying a home. Brokers could begin to advertise their fees, allowing customers to choose lower-cost agents.

According to NAR’s pre-existing “cooperative compensation” rule, in order to list a home on an MLS, the seller’s agents were required to make “blanket unilateral offers of compensation” to the buyer’s agents.

By removing cooperative compensation, this “blanket unilateral” offer to pay buyer’s agents will no longer be permitted. Sellers will no longer stipulate the commission size for buyer’s agents.

Instead, the responsibility for determining their agents’ compensation would fall on the buyers themselves.

Homebuyers could still ask a prospective home seller for a concession that includes money to help cover the buyer’s agent compensation. However, a home seller with multiple offers, for example, could refuse such a request, or opt to go with a bid from a different buyer who isn’t asking for such a concession.

Conversely, sellers may stand to benefit by potentially avoiding payment for the buyer’s agent and assuming that portion of the commission themselves.

How will the settlement affect real estate agents?

The United States boasts some of the highest agent commission rates globally.

Although commission rates have always been open to negotiation, traditionally, the seller of the property pays a real estate agent commission of roughly 6% of the property’s selling price. The commission is factored into the listing price, which is then split between the buyer’s agent and the seller’s agent. Until now, this was widely accepted as part of the process.

As a result of the NAR settlement, the traditional 6% sales commission is scheduled to be cut. Such a cut could have adverse effects on real estate agents, as noted in a recent analysis by Keefe, Bruyette & Woods.

The study suggests that the annual $100 billion in real estate commissions might see a reduction of up to 30%, resulting in as many as 1.6 million agents facing a loss of their income.

Nix states, “Brokers and agents will need to be able to prove their value to clients in order to succeed in the future. We’ve always felt that the average agent in our industry does more harm than good for clients. Many buyers and sellers don’t know what they don’t know, and only a true professional can add value each step of the way.”

As more homebuyers choose to either skip using their services or push for reduced commission rates, buyer agents may be at a disadvantage. With commission information no longer readily available in the MLS, negotiation will play a larger role, along with the potential for a decrease in the overall commission amount.

According to NAR, buyer brokers can still receive payment through various methods, including a direct fixed-fee commission from the buyer, concessions from the seller, or a portion of the listing broker’s earnings.

Homebuyers won’t necessarily have to pay their agent out of pocket. The new rule would allow buyers to ask sellers to pay the buyer’s agents at closing. This means that agent compensation may become part of the negotiation, again, resulting in the possibility of reduced commissions.

What’s up next for NAR? 

Under the proposed terms, NAR will put the sum in a court-controlled trust fund to be paid out over four years. The money will first cover the costs of the plaintiffs’ attorneys’ fees and then be distributed to members of the class. The payment amounts will be determined either through negotiation with the plaintiffs or according to a formula assessing $100 per participant.

In addition to the financial compensation, NAR has agreed to incorporate a series of new regulations.

• NAR can no longer require offers of broker compensation communicated via the MLS. Seller-paid buyer agent compensation may still be an option consumers can pursue via off-MLS negotiation and consultation with real estate professionals.
• NAR can no longer require brokers that subscribe to multiple listing services, many of which are owned by NAR subsidiaries, where homes receive broad exposure in local markets.
• Buyer agents will no longer have the option of having buyer brokerage agreements in place, as they will become mandatory by NAR.

The terms also outline a pathway for firms and MLSs not initially exempted. Brokerages surpassing the $2 billion transaction volume threshold can opt into the settlement by contributing to the court-managed fund. Additionally, it will discharge brokerages led by a NAR member as principal and those with a residential transaction volume of $2 billion or less in 2022.

Pending court approval, NAR’s agreement will absolve the organization and its entirety of members, encompassing state and local realtor associations as well as association-owned multiple listing services, from the claims.

Final words on the seismic NAR settlement

The NAR settlement, scheduled to go into effect in July 2024, has the potential to open doors to a more competitive housing market. And while the agreement is expected to affect most of the players involved in a real estate transaction, its full impact is yet to be determined.

As a homebuyer, you may be asked to sign a contract that spells out how much the agent will be paid and at what point in the process. Over the same period, home sellers should consult their listing agents to make sure they’re complying with the new rules.