Revolutionary Settlement: Real Estate Commission Practices to Undergo Major Changes
In a groundbreaking move, the National Association of Realtors (NAR) has agreed to a substantial settlement that will see it pay $418 million to resolve allegations that home sellers have been unfairly obligated to pay inflated agent commissions. This significant payout is only a part of the settlement, which also includes pivotal changes to the rules governing how real estate agents operate, particularly regarding commission agreements.
Traditionally, when a property was listed for sale through a Multiple Listing Service (MLS), the listing agent could offer to pay a commission to the buyer’s agent directly through the MLS platform. This practice has been contested, leading to the rule change announced by the NAR. Going forward, any agreement to pay a buyer’s agent commission will have to be made outside the MLS platforms, directly between the home sellers and the buyer’s agents.
Moreover, the NAR has committed to instituting a rule requiring agents or MLS participants who work with buyers to enter into a written agreement detailing the commission fees. This initiative aims to enhance transparency, ensuring buyers understand the financial responsibilities entailed in employing an agent’s services from the outset.
These adjustments are scheduled to take effect in mid-July, heralding a substantial shift in the real estate industry’s operation. This change comes in the wake of a legal battle where the NAR, along with various large real estate brokerages, was accused of conspiring to mandate that home sellers cover the commissions of buyers’ agents, a practice a federal jury in Missouri deemed in violation of federal antitrust laws. This legal confrontation culminated in a preliminary damages award of almost $1.8 billion, with the potential for this amount to increase to over $5 billion after considering treble damages.
The settlement not only addresses these legal challenges but also earmarks a new era in how real estate transactions and agent commissions are handled, affecting over one million NAR members. All brokerages with a NAR member as a principal and a residential transaction volume in 2022 of $2 billion or less are enveloped in this agreement. However, it excludes agents associated with HomeServices of America and its subsidiaries, as clarified by the NAR.
This landmark agreement, pending court approval, promises to introduce more flexibility and transparency into real estate transactions, potentially benefiting both home sellers and buyers. As the real estate industry braces for these changes, the full impact of the settlement and rule modifications remains to be seen, but it undoubtedly marks a significant shift towards more equitable practices in real estate negotiations and transactions.
