“Earthshaking,” “ground-breaking,” “revolutionary”... at least, that’s the media’s spin on the settlement agreement reached between the National Association of Realtors and the Department of Justice. Announced late last week, this settlement agreement is big news, and it will change the market. But “earth-shattering” it is not. For as long as I’ve practiced real estate, the media, public, academia, and the industry itself have misrepresented and misunderstood the on-the-ground, IRL, rules, regulations, industry standards, and market forces that actually shape the practice of real estate.
I’ve been practicing real estate for 25 years. Unbelievable! But nevertheless, true. Throughout all of these years of practice, change has been a constant market force. When I started, there was “the book” that was published every three weeks by each brokerage to communicate listings. Then, the “internet” made addresses publicly available to the market. Oh, the Horror! Then, there was the rise of discount and flat fee brokerages. I could go on and on (and you know I would), but, for once, I won’t. Despite the media’s constant appeal for ratings and the prognostications of practitioners, each change has brought with it increased transparency and expanded our clients’ agency.
The settlement agreement is long, complex, myriad, and boring. (NAR's FAQs on the settlement) Much of it involves changes to administrative and back office mechanics, but a few changes will directly and materially affect you and me.
A few things you should know:
1) The settlement is not final - some changes will take effect by July of this year, but the settlement is subject to court review and approval. While we expect the court to sign off on the agreement, it will take several months to finalize. If you only listened to media reports, you’d think it was final - but it’s not. AND, there is no “6%”. Given media reports, you wouldn’t be at fault for believing that - but it’s wrong.
2) The settlement has nothing to do with wrongdoing nor does it contain any admission along those lines. The NAR and Realtor associations throughout the country have agreed to this settlement not because of wrongdoing but to continue the history of increased transparency and fairness.
3) NAR has agreed to implement a new rule prohibiting offers of compensation on the MLS. However, consumers can continue to pursue offers of compensation off-MLS through negotiation and consultation with their real estate professional. This change will go into effect in mid-July 2024.
Enough already! What are the implications for buyers and sellers?
For Buyers: all references to buyer agent commission (BAC) will be removed from the MLS, which, in our case, is the rMLS. Compensation or Buyer Agent Commission will be negotiated separately, in a written agreement, between the buyer and their real estate broker. How this will work is not yet clear. However, this is not new. We’ve always negotiated our fee when the property was “for sale by owner,” listed by a discount broker, or offering a flat fee. There are simple, practical ways to achieve this, which we have been practicing for at least 25 years. What NAR and the DOJ have presented, however, is not clear and might possibly make the market murkier.
For Sellers: Listing Agent Commission (LAC) will continue to be negotiated between the seller and their listing agent. No longer will the listing agent or seller be allowed to offer commission through the rMLS as the current cooperative compensation agreement requires. After the new rule goes into effect, listing brokers and sellers can continue to offer compensation for buyer broker services but such offers cannot be communicated via the rMLS. We’ll have to see how this will actually work in practice when the new rule takes effect.
On the upside, NAR has long encouraged its members to use written agreements because they help consumers understand exactly what services and value will be provided when being represented by a real estate professional. As this settlement works its way to final approval, new rules will be introduced, and the complicated “known unknowns” will come to light. My experience tells me the market will respond with increased transparency and expanded agency. We welcome these changes to our industry and, most importantly, for our clients!
