How the NAR Settlement Will Affect Real Estate Agents

On Friday, March 15, 2024, the National Association of REALTORS (NAR) reached a proposed settlement with the group of homebuyers that filed a class action lawsuit accusing the real estate industry of artificially inflating home prices through unfair commission practices. So, how will the NAR settlement affect real estate agents?

Agents all over the country have questions about what this settlement means for day-to-day operations:

• Is the commission structure dead?
• Are homebuyers now expected to pay for their own buyer’s agent? On top of the down payment and closing costs they’re already struggling to cover?
• How am I going to get paid for my services, and do I have to change my entire business model?

This article will give you some clarity on how the NAR settlement will affect real estate agents.

Disclaimers: This is an evolving issue; the information in this article is accurate as of March 16, 2024. At this point, this is only a proposed settlement. It still needs to be approved by the court system. But there is no reason to believe that the courts would prevent this deal from being approved. This settlement is a huge issue, so this article will simply be a summary; we can’t cover every nuisance in a single post. This article is not intended to provide legal advice. You should discuss this issue with your managing broker, local Board of REALTORS, and/or attorney.

What Was the Problem?

In most markets, commissions range from 4-6% of the sales price. This is, and always has been, negotiable. However, most agents set their rates based on the local market average and stand firm on that rate in negotiations.

The commission agreed upon by the seller and their agent has traditionally been split between the seller’s agent/broker and the buyer’s agent/broker. This is because we agreed as a society that 1) buyers deserve professional representation in such an important financial decision, and 2) buyers don’t typically have a large enough budget to cover their own real estate agent fees on top of the down payment and closing costs.

The Sellers’ Issue with this Structure

Some sellers felt like they were charged too much considering the service that was provided. Some sellers also felt like it was unfair to ask them to pay for the buyer’s agent.

Additionally, even though commissions have always been negotiable, sellers may have felt that they couldn’t offer a lower commission without impacting the agent’s incentive to promote their listing. For example, if they offered 5% instead of the more common 6%, agents might not work as hard or invest as much time in finding a buyer.

The Buyers’ Issue with this Structure

Some buyers had an issue with the idea that the cost of their agent might be essentially rolled into the purchase price; they wondered if the price would have been lower if the seller didn’t have to spend so much on real estate agent commissions.

Additionally, some buyers wondered if their agent acted in their best interest. Did their agent only show them more expensive homes in order to get a higher commission?

What are the Proposed Settlement Terms?

NAR is offering to pay $418 million to the plaintiff over 4 years. It is unclear at this point if the fee will be paid out of existing funds or if a special assessment will be levied on NAR members to help cover this cost.

In addition to the financial agreement, the NAR has agreed to change some of the rules on commissions.

What are the New NAR Rules on Commissions?

1. The agents’ compensation cannot be published on the MLS. Up until today, the buyer’s agent compensation for any listing was entered in a designated MLS field; the MLS listing would state how much of the sales price you could expect to earn by representing the buyer. The information can no longer be listed. The idea behind this rule change is to allow buyers to negotiate the buyer’s agent fee directly with their agent. However, sellers can still help buyers with this expense; it would just be treated like a concession.
2. Buyers’ agents must have a written agreement with their buyers. Many agents have always insisted on getting the buyer’s signature on an exclusive representation agreement to confirm that the agent is entitled to their side of the commission. But now, this agreement must be signed before showing a single property. And it must clearly explain the compensation agreed upon between the agent and buyer. You may already have a Buyer Representation Agreement in place. However, your broker, local board, or attorney may require some revisions to clarify the payment structure.
3. MLS services cannot require REALTORS/brokers to subscribe to the service. Many local MLS services have required that agents subscribe to the MLS to be compensated for their service. This requirement is now prohibited.

Real Estate Agents vs The NAR

In general, agents and brokers are extremely disappointed with the NAR for settling in this way.  Here’s a quick look at the settlement from the average agent’s point of view compared to the NAR’s point of view.

From the agent/broker’s point of view

To be a member of the NAR, agents must pay dues to their state and local board of REALTORS, as well as the national level. These fees are expected to cover networking opportunities, ongoing training, the instant credibility of calling yourself a REALTOR, and ongoing representation in legislation. Most agents and brokers feel that this settlement poorly represents the entire profession and betrays the trust they placed in NAR to defend (what they see as) fair and equitable business practices.

Additionally, agents and brokers were disappointed that NAR made the news public before informing members, especially since members were informed of NAR’s intent to appeal. In fact, many agents and brokers learned of the news from clients calling with questions. They were caught completely off-guard, making them look uninformed.

From the NAR’s point of view

The NAR feels it did everything in its power to get the best deal possible for its members on this settlement. There are reports that the NAR declined other offers and continued to fight for more favorable terms.

From the NAR’s point of view, this suit was a publicity nightmare, and settling early prevented additional damage to the public image of REALTORS, while also reducing legal fees (which are expected to be tens of millions of dollars).

NAR felt that settling protected its members against individual suits. After all, any seller who is part of the class action suit waives their right to personally pursue a suit against their agent. The NAR settlement is expected to cover around a million agents. Agents belonging to Keller Williams, Anywhere, and Remax agents are covered under a separate $208 million settlement. And a few other agents/brokers opted out of this settlement, preferring to work directly with plaintiffs to arrive at different terms.

How to Discuss the NAR Settlement with Your Clients

Americans are hearing about this settlement in every market of the country. Much of the narrative is that agents and brokers charged predatory fees, so now they’re going to pay, and the industry is going to forever change the way agents are compensated. This is being sold to the public as a means of helping buyers and sellers pay far less in real estate fees so that home prices will come down.

Of course you know how much work goes into every deal. You know you nurture relationships for months or even years to bring the right buyers along for a listing. You know how much of your commission goes to cover necessary business expenses like getting professional photos of homes, advertising listings, and paying insurance premiums. And you understand that a smooth transaction is the result of extensive training, knowledge, and skill.

So, you need to get out there in your local community to correct the record.

1. Turn This into a Marketing Opportunity

This is the time for an epic AMA (Ask Me Anything).

You can go live on social media and invite your audience to ask you all the questions they have about real estate agent payment structures in general and the NAR Settlement in particular. Or you can create a post inviting your followers to leave their questions in the comments.

You can also write a blog post and create social media content to explain the settlement. Here are some specific topic ideas:

• The Top 5 Things Home Sellers Need to Know About the Proposed NAR Settlement
• The Top 5 Homebuyer Takeaways from the Proposed NAR Settlement.
• Did the NAR Kill Real Estate Commissions?
• The Pros and Cons of the Proposed NAR Settlement for Buyers
• The Pros and Cons of the Proposed NAR Settlement for Sellers
• Do Homebuyers Have to Pay Agent Fees Out of Pocket Now?

You might also send a newsletter to your clients explaining the reality of what agents do to earn their commissions.

Need help getting started? You can download a professionally-written, ready-to-publish blog post from Etsy that you can publish as your own work.

2. Choose Vulnerability over Defensiveness

Rather than getting defensive or combative, make yourself vulnerable with your clients.

You can tell your clients how hurt you are by this settlement. Most of us are truly devastated that so many sellers feel they received so little value from the professionals operating in our field. Especially when we work so hard to represent our clients well and get them the results they’re looking for.

3. Show. Your. Value.

For too long, agents have tried to make home sales look easy. To entice people to buy and sell, we made the process look simple. And we handled issues behind the scenes to avoid unnecessary stress for our clients. As a result, many sellers think agents just enter the property details on the MLS and collect an exorbitant paycheck. And many buyers think agents just show them a few houses and, again, collect an exorbitant paycheck.

And, frankly, during the raging pandemic-era seller’s market, selling a home may have simply been a matter of listing the home on the MLS and waiting for the offers to roll in. Of course you still fought to get favorable terms for your seller, but unless you explained that to them, they probably didn’t realize it.

It’s time to get real about the dirty work that goes into a successful deal. In the immediate aftermath of this settlement, show your prospective buyers and sellers what you actually do for them. Make sure to include the invisible labor, like the countless hours you invest in staying up to date on changes in the market and in regulations so you can knowledgeably advise your clients.

How to Handle Commission Discussions Going Forward

1. Show. Your. Value.

Yes, we just talked about showing your value when discussing this settlement with your clients. Get ready to make this the focus of every discussion you have with every prospect for the rest of your career.

Sit down and write a list of everything you bring to the table for your clients. Get specific. Then figure out how to show your prospective clients the value of your experience, knowledge, skill, connections, and resources.

Your job is to show buyers and sellers why they need an agent in general and why they need you in particular.

One great way to do this is to publish the list you just wrote out. Have it on your website so visitors can see exactly what you can do and how it benefits them.

Another option is to do a BTS (behind-the-scenes) series on social media. Record yourself doing everything and share those videos on social media:

• Setting up open houses,
• Printing your listing flyers,
• Drafting your market report,
• Fishing the leaves out of the vacant listing’s pool,
• Pouring over the hot sheets,
• Listening to a real estate podcast while doing the dishes,
• Making calls to prospective buyers,
• Taking your continuing education courses,
• EVERYTHING YOU DO that your clients don’t see.

Oh, and don’t forget to update your Listing Presentation and Buyer’s Guide to address compensation under these new terms.

2. Discuss Payment Structures Upfront and In Detail

Sellers need to understand how they benefit from helping cover the cost of the buyer’s agent. As we all know, first-time buyers are already struggling with the upfront investment required to buy a home. If the other sellers are offering to cover the buyer’s agent’s fee, and your seller isn’t, buyers are going to be far less likely to choose the listing that requires them to pay their agent out-of-pocket.

Buyers now have more leverage to negotiate the buyer’s agent fee from scratch. A buyer might offer to pay you a flat fee for every home shown plus a flat fee for writing an offer. Are you willing to accept those terms?

It’s important to note that, under the new rules, buyer’s agents cannot accept more compensation than the written agreement with their buyers states. For example, if you accept an offer to serve a buyer for a 2% commission, you cannot accept any more than the 2%, even if the seller offers a buyer’s agent concession.

Talk with your brokerage about the terms you’re willing to work with. Some brokerages may choose to offer service packages at different price points for buyers going forward.

3. Continue to Work on Your Negotiation Skills

The news of this settlement will embolden buyers and sellers to negotiate harder with you. They may try to offer a much lower percentage. Or a flat rate. Or an hourly rate. Make sure you’re ready for those negotiations.

How the NAR Settlement Will Affect Real Estate Agents – FAQs

Is the 6% commission dead?

Not necessarily.

The seller can still pay for the buyer’s agent via a concession. So it is still possible to negotiate a 6% commission with your seller, with 3% being offered as a concession to the buyer to cover their buyer’s agent costs. As with any other concession, the buyer’s offer would need to include this information to make the concession a term of the purchase agreement.

When will the settlement be implemented?

Assuming that the settlement is approved, the changes would likely be implemented in mid-July 2024.

Can my previous sellers sue me over my commission from their sale?

Possibly, but it’s unlikely that they would. Sellers who join this settlement waive their right to pursue independent legal action. And most people are not interested in spending thousands in legal fees and months of their life to pursue a direct lawsuit. Especially if you served your clients well.

How can VA buyers (Veterans and Military Service Members) pay for a buyer’s agent?

Buyers who use VA loans to purchase a home are prohibited by the VA from paying real estate agent or broker fees. So your VA buyers would need to rely on a seller concession to cover your fee as their buyer’s agent.

Is membership in the NAR still worth it?

Many agents are questioning the value of their membership in the NAR. As we mentioned, they feel betrayed by this settlement. But it’s worth noting that non-members are not covered by this settlement, so they have a greater risk of individual suits from prior sellers. In fact, some non-NAR agents and brokers are looking to join specifically for the legal protection afforded by this settlement.

Can NAR pay the fees out of existing dues or will there be a separate assessment?

At this point, it is unclear if NAR will pay the settlement out of existing funds or if they will need to levy a special assessment on members.

Is real estate still a good career path?

Like every other industry, real estate has always been open to disruption. In the 1990s, we were told the Internet would make real estate agents obsolete. Then we weathered a complete housing market collapse in 2008. And we continued to show our value when “experts” said big-data companies like Zillow would replace agents. Today, the pay structure that supports the entire industry is being called into question for the first time in decades. But that’s fine. We have adapted before, and we’ll do it again. Just another interesting year in the life of a real estate professional!