The National Association of Realtors (NAR) is not just another trade organization – it is the largest professional association in the United States, acting as the driving force of the real estate industry. When it reaches a settlement in a legal dispute, as it did in 2021, it’s critical to understand what that means not just for industry insiders, but also for everyday consumers and real estate brokers.
The settlement came after an anti-trust class action lawsuit filed against the NAR, among other leading real estate companies. The lawsuit alleged that the defendants had conspired to inflating the prices of broker commissions, causing consumers an undue financial burden. In response to the lawsuit, NAR agreed to a settlement which involves altering their policies to bring more transparency to the industry.
According to the terms of the settlement, NAR will implement policy changes that aim to prevent price setting and bring more transparency to buyer-broker commissions. Let’s dive a bit deeper into what these policy changes mean for consumers and brokers.
Firstly, for consumers, the key change is increased transparency regarding brokerage fees. In the past, the seller would decide on the buyer-broker commission before the listing was launched, and this information was not made explicitly clear to the buyer. Following the settlement, NAR agreed to change its stance, meaning realtors will now be obligated to explain to their clients that commissions are negotiable. This understanding can potentially influence the buyer’s choice, allowing for more informed decision-making. It also nudges the industry towards a competitive, and arguably fairer, fee structure.
Secondly, the settlement impacts the role of NAR-affiliated multiple listing services or MLSs. They can no longer forbid the display of buyer-broker commission rates on property listings. Visible representation of these rates on publicly accessible sites promotes equal ground for competition as the requesting buyer’s agent’s commission will no longer remain hidden.
For brokers, the NAR settlement could mean slightly tougher competition. Because consumers will have full access and understanding of their fees and the ways they can negotiate, brokers will need to provide comprehensive and competitive services that justify their commission rates. The decision also compels brokers to clearly articulate to consumers their policies on handling multiple offer situations, driving brokers to align more closely with practices that truly serve the best interest of the client.
Also noteworthy is that the settlement doesn’t automatically cause a reduction in the commission rates. However, it does pave the path for a more transparent, competitive market where consumers can evaluate and make educated choices.
These changes also implicate the role brokers play in representing their clients. Brokers will now be required to disclose any personal interests they may have in the properties being represented and, potentially, this could lead to an increase in trust and credibility in broker-client relationships.
Ultimately, the NAR settlement, by enforcing transparency, seeks to create a fairer real estate marketplace. It empowers consumers with knowledge and choice, while driving brokers to offer services that are competitive, transparent, and truly serving the best interests of their clients. This fundamental change is indeed poised to create a significant impact on how real estate transactions would be carried out in the coming years.