The National Association of REALTORS® ("NAR") entered a settlement agreement earlier this year to settle several antitrust lawsuits accusing NAR of imposing brokerage commission rules that inflated residential real estate prices and unfairly burdened home sellers.As a result of this settlement, NAR agreed to make a $418 million settlement payment and make sweeping changes to the Multiple Listing Service ("MLS") policy and realtor practices within residential real estate transactions. NAR's mandatory MLS policy changes took effect on August 17, 2024, and a final settlement approval hearing is scheduled for November 26, 2024.
Most commercial real estate transactions will be unaffected by these changes since commercial listings generally appear on commercial information exchanges ("CIEs"), not MLS, and do not include an offer of compensation.
As discussed further below, the settlement agreement's major impacts are: (1) buyer's broker commission offers are now prohibited on MLS; and (2) a written agreement is required between MLS participants working with buyers. While these two changes are significant, they also provide room for residential builders and developers to gain a competitive advantage by proactively communicating with buyers and their representatives to relieve financial uncertainty.
Major Changes from the Settlement
No Buyer's Broker Compensation Offers on MLS
Pre-NAR settlement, sellers and their brokers would negotiate a fee, decide how that fee would be split with the buyer's broker, and the seller would pay both fees from the proceeds of the sale. As part of the settlement, NAR agreed to create a new MLS rule prohibiting buyer's broker compensation offers on MLS. Buyer's brokers can still be compensated using the same methods they have used historically, and sellers and listing brokers are free to negotiate and offer compensation to buyer's brokers—but such negotiations must take place outside the MLS.
Buyer Representation Agreement Prior to Home Visitation
Another major change is that a written agreement ("Buyer Representation Agreements") must be in place between a buyer and the MLS participants working with a buyer prior to the buyer touring a home. Historically, NAR strongly advised but did not require, buyers and their brokers to have a written agreement in place. The Buyer Representation Agreement must specify and conspicuously disclose the amount or rate of compensation to be paid to the buyer's broker.
The impact of this change varies based on jurisdiction. Several states, including Colorado, already require Buyer Representation Agreements. The Colorado Real Estate Commission has already updated various of its existing forms to address the NAR settlement. The Colorado Bar Association has also created a one-page agreement that may be used to confirm the brokerage compensation to be paid by the listing broker to the buyer's broker.
Considerations for Business Post-Settlement
While there is uncertainty about the full impact of the NAR settlement on the residential real estate market, there are opportunities for agents to adapt to these changes within the confines of the NAR settlement. Industry participants must be proactive and creative in adjusting their practices to comply with the new rules and remain competitive.
If a listing agent or seller is offering compensation for the buyer's broker, they can communicate that information outside the MLS, such as on the listing broker's website, marketing materials, or even direct communication with buyer's broker agencies. Steering or filtering by buyer's broker (the process of eliminating properties from the inquiry because they lack or offer lower buyer's broker commissions) is still prohibited, but this would allow buyer's brokers to know which listing broker agencies provide them financial certainty, incentivizing them to conduct business with the respective seller.
Sellers can still offer buyer concessions on an MLS, so long as such concessions are not limited to or conditioned on the use of or payment to a buyer's broker.
Since the NAR settlement may result in more buyers paying their agents directly, rather than the traditional model of the seller paying all agents, some buyers might forego working with a broker entirely. Builders will likely take advantage of the NAR settlement by dealing more directly with buyers, and offering buyers incentives in order to cut out the buyer's agent entirely. In a post-NAR settlement world, buyer's brokers must be able to communicate their value to buyers in order to stay competitive.
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