Open Letter | NAR $418M Lawsuit Settlement
Understanding the NAR $418M Settlement
The settlement has been a topic of conversation in the real estate industry.
Here's what you need to know…
BACKGROUND
An antitrust class action lawsuit against Anywhere Realty, Re/Max, AND the National Association of Realtors (NAR) focused on broker fees, specifically the seller’s payment to buyer’s agents.
NAR rules require sellers to pay a fee, split between the seller's and buyer's agents. While the fee could be as low as $0, research shows it remains largely uniform.
Anywhere Realty and Re/Max settled the lawsuits by scaling back their relationship with the NAR and paying $139 million in damages.
Antitrust refers to COMPETITION LAW - the regulation of the concentration of economic power, particularly in regard to monopolies and other anticompetitive practices. Antitrust laws exist as both federal statutes and state statutes.
WHAT HAPPENED
Plaintiffs represented over 260,000 home sellers from Missouri, Kansas, and Illinois - arguing the current system keeps home prices artificially high.
Starting mid-July 2024, the penalty imposed on NAR will be paid out to plaintiffs over a period of four (4) years AND Buyer Agency documents, subject to court approval, will go from optional to mandatory.
THE DECISION IN ENGLISH
MLS will no longer have a section to input Buyer Agent Commission, but a written agreement to offer compensation is allowed and it can be posted on other websites. REALTORS can offer commissions via advertised seller concessions.
NAR never required a mandatory price for commission - just that it must be as little as $0.
It's important to note that the rules resulting from the settlement are not effective immediately and NOT all brokerages are impacted.
Prior to this case, written Buyer representation agreements were already mandatory in 18 states and has always been a choice for REALTORS.
REALTOR® is trademarked for identify members of the National Association of REALTORS®
A real estate agent is NOT automatically a REALTOR unless they are a member of NAR. And real estate agents can advertise properties for sale a Multiple Listing Service (MLS) - currently totaling 600-800 MLSs, organized by region.
Our is Bright MLS - which covers PA, MD, DE, VA, and Southern NJ and stands second behind the California-Regional MLS (currently hosts approximately 110,000 real estate professionals).
Forget real estate for a second, why do stores offer discounts on clearance and sale items? They can no longer get market value for the desired item. The same goes for professionals that offer discount rates for their services. You get what you pay for - and you do not pay a REALTOR for things to go right, you pay us to protect you from the law when things go bad.
Any buyer knows at closing there is a line item to pay the title company for a one-time policy to protect from future claims or liens against the property. As REALTORS, we operate on the clients behalf with the brokerage’s Errors and Omissions coverage. However, we bear the risk of future claims against:
Delaware Guaranty Fund: The Real Estate Guaranty Fund, administered by the Department of Consumer Protection, can reimburse consumers who suffer financial losses in unscrupulous real estate transactions.
NAR Code of Ethics: Adopted in 1913 to ensure that consumers are served by requiring REALTORS® to cooperate with each other in furthering clients' best interests.
Grievance complaints at the local association - mine is Kent County Association of REALTORS (KCAR)
Agency is the practice of representing a client in a real estate transaction. In the early 1990s, buyer agency was passed to exist exclusively by offering agency to buyers who become clients.
If the buyer wished to buy a home that the company or REALTOR has listed for sale, then the buyers would have to agree to some form of dual agency in the event. If the buyer does not enter into this agreement, they can remain a customer of the brokerage with a sub-agent handling representation.
Where does the COMMISSION go?
Example of 60/40 Commission Split
As for Delaware, we have statutory agency - meaning our duties are defined by Delaware Law and any change would require a vote by the legislative representatives.
Consumer Information Statement (CIS) explains Agency law in Delaware. Real estate salespersons, associate brokers, and brokers are required to provide this at the earlier of your first scheduled appointment, the first showing of a property, or making an offer. Consumers are encouraged to read before listing your home for sale or before viewing homes, but definitely PRIOR to signing Agreement of Sale or any brokerage agreement.
Once a member of the public makes contact with a REALTOR, they have presumed agency with our duty of confidentiality. The Buyer Representation Agreement is will essentially continue to function like an invoice as a promise to pay should the seller not offer compensation.
As a licensed REALTOR practicing in Delaware, we must be a member of the Delaware Association of REALTORS (DAR) AND at least a primary member of the local association
New Castle County Board of REALTORS (NCCBOR)
Kent County Association of REALTORS (KCAR)
Sussex County Association of REALTORS (SCOAR)
While the news has been reporting membership to these organizations may be impacted - that is false.
The Delaware Way
As a customer, the real estate licensee owes the client the duties regarding:
Loyalty to the buyer by acting in the buyer's best interest.
Confidentiality by not disclosing facts that could influence the buyers ability to negotiate the best terms.
Disclosure to other parties in the transaction that the licensee has been engaged as a buyer's agent.
Once hired, the agent acts as a fiduciary for the client.
-
FALSE - In fact, VA Loans do NOT allow buyers to pay the following fees: Real estate broker or agent, application, attorney fees, appraisal requested by lender or seller for reconsideration of value, etc. HUD and Fannie and Freddie will have to modify loan underwriting requirements to allow this for compliance.
-
CLARIFICATION - There is no standard commission, actual paid commissions range as low as 1% (if not zero) and as high as 8%.
REALTORS are independent contractors and as a small business owner, we can charge a flat fee, commission based on percentage, itemized invoicing, and transaction related fees. Many brokerages choose the commission model for simplicity.
-
FALSE - Bright MLS has a mandatory field for compensation when entering a listing - this field will be removed as the agents CAN see when viewing using a sanctioned property search portal like MLS Touch App and the brokerages IDX portal. REALTORS are not allowed to withhold providing viable properties based on the compensation offered.
-
TRUE - Sellers NEVER had to pay buyer agents as commission was always negotiable. Remember, NAR always said the fee could be as low as $0; however, brokerages can have their own requirements and allowances.
In fact, some prominent builders pay between 0% - 2% to buyer agents.
My true thoughts…
I opt to reduce my own income to benefit my seller in need of proceeds than negotiate to offer less money to the buyer agent. Every seller was a buyer at one time so it is better to do good business.
Despite the hefty figure, this settlement is NOT a landmark decision that is set to rock the industry. Closing a transaction actually costs all parties at least 8%-20% depending on how much the buyer puts down.
I highly recommend seller’s be mindful saving money on commission for a house that does not sell is still $0 earned. Even builders offer incentives and compensation for buyer agency. Currently, buyers tend to pay for deed prep, lender fees, sometimes their own and the seller’s transfer taxes, as well as due diligence inspections and additional monies out of pocket.
In Delaware, we have bigger problems - we have the highest TRANSFER TAX nationwide at 4%. Sellers and buyers should be complaining to their representatives and participating in local elections to help lobby against lowering these fees. The State charges consumers to transact then again for income taxes and again for local property taxes - we continue to pay without complaint.
The mechanics will be alittle different, but the destination will be the same - just semantics. Buyer agent compensation will be a pre-negotiated concession as part of the offer.
Not a lot will change for my business as I already required a signed representation agreement for all clients as part of my intake process. Meaning should the seller not agree to provide compensation when I represent buyers, the buyers are aware that expectation of compensation will be apart of their cash to close due at settlement. However, modifications will be appealed before the final requirements are in place.
If you have any questions or simply want to chat about your real estate aspirations - I'm here to lend a helping hand. Feel free to reach out and let's embark on this thrilling journey together!
