Spotlight: NAR Settlement

Spotlight: NAR Settlement

Recent developments in the real estate industry, particularly a proposed settlement of litigation involving the National Association of REALTORS® (NAR), have sparked considerable attention and speculation about impending changes in the landscape of home buying and selling processes. The agreement reached by NAR to resolve nationwide claims related to broker commissions marks a significant milestone in this ongoing saga. For more information on this, see our recent blog post, and a statement released by our industry trade group, WERC.

Under this settlement, subject to court approval, NAR would pay $418 million over approximately four years and agree to change several of their rules regarding real estate broker compensation. One critical aspect of this resolution is the release of most NAR members and many industry stakeholders from liability, while preserving consumer choice in the buying or selling process.

However, despite this proposed settlement, uncertainties persist. Other lawsuits are pending, and a Department of Justice investigation into real estate industry anti-competitive practices is ongoing.  If the NAR settlement is approved, it will take effect in July 2024. In the meantime, real estate brokerages nationwide are likely to update their procedures in anticipation of impending industry-wide changes.

The focus primarily shifts to the buyer agent commissions in the home purchase process, which have typically been paid by home sellers. Sellers may reconsider their willingness to pay buyer commissions, potentially impacting transferees. This could prompt buyers, including transferees, to sign buyer's agency agreements addressing how the buyer's agent will be compensated. Once stipulated in the buyer agency or representation agreement, the agent is restricted from receiving compensation exceeding the specified amount from any source. Across the United States, 18 states currently require buyer agency/representation agreements; though, additional states will likely require agreements in the coming months.

Should a situation arise where the seller refuses to cover the buyer agent commissions, transferee buyers may find themselves responsible to compensate their broker. In this case, it is possible that a transferee will request an exception from their employer to cover the buyer agent commissions. If granted, these exceptions would increase costs for the company and might necessitate policy adjustments, as well as have implications for the transferee as a taxable benefit.

At NuCompass, we recognize the importance of keeping our clients informed during these shifts. The real estate landscape is changing. We aim to educate clients and their transferees about these changes, ensuring they navigate the process with awareness and preparedness. Currently,  we are not recommending major policy changes at this time. However, we are closely monitoring developments. As the situation evolves, we'll provide updated guidance to ensure a seamless experience for our clients and their transferees.