By: Will Prince, Esq. and Manuel Crespo, Esq.
As some of you may be aware, on or around March 15, 2024, the National Association of Realtors (“NAR”) – a national real estate trade organization created to promote and foster uniform trade practices for its members – entered into a settlement agreement (the “Settlement”) to settle several class action lawsuits.
The lawsuits alleged, inter alia , that NAR and its affiliate members engaged in anticompetitive trade practices, which could prove detrimental to prospective home buyers and sellers, that arguably:
Reduced competition among real estate brokers/agents;
Allowed buyer brokers to mislead prospective buyers regarding brokerage commissions; and
Encouraged realtors to engage in conduct that was driven more by an agent’s financial gain.
The Settlement, which went into effect on August 17, 2024, was crafted to ostensibly prevent anticompetitive conduct of NAR members and promote transparency in the home buying process.
As part of the Settlement, NAR agreed to:
Pay more than $400 million in damages; and
Modify their practices and procedures to:
Prohibit seller agents from advertising commission fees to buyers’ agents on multiple listing services; and
Require the prospective home buyers and their agents to enter into a legally binding representation agreement prior to touring homesites together.
These changes are intended to promote healthy trade practices and transparency, which would ultimately create a more competitive and fairer marketplace that benefits the public.
Left to be seen is the real-world impact of these changes when implemented into practice. While some in the industry view the changes as liberating for sellers by reducing the overall cost of real estate transactions, particularly in the residential market, others fear that sellers no longer burdened with the obligation to pay a “traditional” commission percentage will cause a cost-shift to buyers for buyer’s agent commissions. Many surmise that the aforementioned cost-shift may impact buyers’ ability to obtain financing as this additional expense is unlikely to be treated as a transactional cost that can be “folded into” purchase financing.
Additional concerns have been raised with regard to the ability for smaller, independent brokerages and “part-time” agents to absorb the theoretical reduction in compensation, thereby impacting Realtors® in their numbers. Some argue this will increase professionalism and competency in the profession while others believe it will become an environment that favors only large brokerage companies and will encourage yet even more mergers of the large players, thereby resulting in less competition – precisely the environment the Settlement sought to diminish.
The Settlement is subject to final court approval, with the hearing for approval scheduled for November 26, 2024; however, the revised commission practices and changes to the MLS took effect on August 17, 2024, with relatively little ado. Impact on market prices is not expected for some time. For the moment, it appears brokerages nationwide are scrambling to create contracts for short term commitments given that buyers are unaccustomed to formally retaining representation and have proven skeptical about taking on a financial commitment to compensate their agent where a seller may not agree to a proposed buyer agent commission.
The Settlement will be published in the Federal Register, as required by the Antitrust Procedures and Penalties Act. After the 60-day comment period, the court may enter the proposed final judgment upon a finding that it serves the public interest. The Settlement does not apply to commercial transactions. For more detailed information concerning the Settlement and related matters, please visit the National Association of Realtors website at https://www.nar.realtors/newsroom .
This will surely continue to be a developing issue. The entirety of residential real estate professionals, from residential lenders to closing agents, should stay tuned and be ready to adapt creatively to this new environment. If you have any additional questions, feel free to contact a member of Greenspoon Marder’s Real Estate team.
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