The Impact of the National Association of Realtors Settlement Agreement
When selling a home, the selling party will typically pay a 5-6% commission to the listing agent, who then pays a negotiated portion of that commission (often, but not always, half) to the buyer’s agent. Technically, the commissions are negotiable, but the National Association of Realtors (NAR), a powerful trade association boasting over 1.5 million members, has typically utilized the “cooperative compensation rule”, where listing agents will specify the amount of compensation going to the buyer’s agent in the same transaction.
In 2019, home sellers in several states filed lawsuits against the NAR, alleging conspiracy to inflate commissions paid to home-buyer’s real estate agents and violation of antitrust laws. Specifically, the lawsuits alleged that the NAR and brokerage firms unlawfully conspired to maximize commissions earned by real estate agents in requiring listing brokers to engage in cooperative compensation.
In October of 2023, a federal civil jury in the U.S. District Court for the Western District of Missouri assessed $1.8 billion in damages against NAR and its codefendants. In March of 2024, and in lieu of NAR filing an appeal, the parties reached a settlement agreement that:
- Requires NAR to pay $418 million over four years to compensate home sellers across the United States;
- Prohibits the display of compensation offers from sellers to buyer brokers on the Multiple Listing Service (MLS); and
- Requires clear agreements between buyers and their brokers regarding compensation before any services are provided.
Although sellers and their brokers can no longer display compensation offers on the MLS, the changes still permit individual home sellers to negotiate with a buyer’s agent outside of the MLS. Nonetheless, advocates believe that the advertising on the MLS of compensation offers artificially inflated agent commissioners because some buyer’s agents would avoid showing listings with lower proposed commissions. Advocates have also indicated that requiring written agreements between buyers and their brokers will promote clarity between them about their professional responsibilities and obligations.
The long-term effect of these changes is still unknown, with some analysts believing that the changes will lower agent commissions, reduce retention of buyer’s agents, and reduce home prices accordingly. Other analysts, however, argue that this will not have much meaningful effect, with buyers reducing their offers to effectively take the money they would pay the sellers and pay it to their own agents instead. In other words, these changes would simply preserve much of the status quo despite the new emphasis on case-by-case negotiation of terms.
Whatever the case, the settlement terms have broad impact nationally. Interestingly, Washington State remains largely unaffected. The Northwest Multiple Listing Service (NWMLS), which serves the Puget Sound area and most of Washington State, is not governed by NAR, and it has opted out of the impact of the NAR settlement. However, Washington State, whether by legislature, or voluntarily by the NWMLS, previously adopted some of the most important changes arising from the NAR settlement. Specifically:
- The NWMLS, effective October of 2019, allows brokers to publish the buyer’s agent commission independently of the seller’s offer, which preempted the NAR settlement requirements, and decoupled the commissions, allowing for independent negotiation and publication; and
- The Washington State legislature, effective January of 2024, requires that real estate brokers representing buyers have a signed Buyer Representation Agreement in place before engaging in service, including even property showings.
In other words, Washington State already requires representation agreements between buyers and their agents, and further, already allows for independent publishing of the buyer’s agent commissions. As a result, regardless of whether one considers these changes good or bad, Washington State has arguably nonetheless been ahead of the curve with respect to these changes. Nonetheless, as these changes begin to permeate through the different affected states, they may spur other currently unknown developments that could further impact the real estate industry, which could in turn impact the future of that industry in Washington State.
Whether you are a title officer, homeowner, prospective purchaser or seller, or a real estate broker representing buyers or sellers, the attorneys at Beresford Booth remain available to guide you through both the transactional process, and through the resolution of any disputes that may arise. If you have any questions, please feel free to contact one of our real estate attorneys for assistance.
To learn more about The Impact of the National Association of Realtors Settlement Agreement, please do not hesitate to contact us at info@beresfordlaw.com or by phone (425) 776-4100.