The Implications of the NAR Settlement for Real Estate Investors: Insights from Industry Sources

Last week, the National Association of Realtors (NAR) reached an agreement that will alter its rules pertaining to sales commissions. If approved by federal courts, this deal is likely to cause ripples through the real estate industry and reduce prices nationwide.

Anthony Panebianco of Davis Malm Real Estate Attorneys told BiggerPockets that this settlement comes as no surprise – as any court judgment would likely lead to bankruptcy for the NAR.

“It was expected before this settlement, and now is certainly guaranteed,” he stated.

The NAR has agreed to pay $418 million in damages and implement new rules by July that will change how real estate brokers are compensated. One rule would prohibit brokers from offering compensation through multiple listing services (MLS), which critics claim led to more expensive properties being shown to buyers. Another would require buyer-brokers entering into written agreements with their clients.

Nykia Wright, interim CEO of NAR said in a statement: “Our goal has always been to safeguard consumer choice while safeguarding members as best we can – this settlement achieves both of those objectives.”

An End to the Traditional Commission Model?
With changes to NAR rules coming into effect this January, many brokers can expect their commission rates to decrease by as much as 50% – even more significantly than previously projected.

In turn, this could present opportunities for alternative selling models – including an expansion of current ones such as flat fees or discount brokerages as well as completely novel approaches – according to Nick Narodny, founder and CEO of real estate startup Aalto. As reported by BiggerPockets.

“They could range from subscription-based plans to flat purchases, giving consumers more of a voice in what they purchase,” explained Mr. Williamson.

Panebianco believes there could be significant results if other groups were to attempt to step in and provide alternative models of representation.

“Now would be an opportune moment for any entity that wants to offer an alternative approach: We will lobby on your behalf and predict better what the future has in store,” explained Mr. Lafontaine.

Some brokers believe the news could benefit the industry as less experienced brokers may leave, and decoupling will bring greater clarity in an often complex commission system.

“Real estate investors will benefit from having only the smartest agents remain in the industry,” Michael Martirena of Ivan and Mike Team with Compass Miami told BiggerPockets.

Martirena suggested this will lead to a “collective leveling-up in terms of education, information and client service,” with agents being able to help clients without hidden costs or surprises. “Transparency will benefit investors as much as consumers,” according to him.

What This Means for Real Estate Investors
While the National Association of Realtors’ settlement does not settle the compensation debate, its rules only apply to agency members; not all databases require membership – RE/MAX and Redfin are among many real estate companies who have dropped requirements that agents be part of the NAR in response to multiple lawsuits against agents belonging to these organizations.

The Department of Justice (DOJ) continues its probe of the NAR, specifically its Multiple Listing Service (MLS), accusing it of suppressing competition and violating antitrust laws. In its statement of interest relating to the commission lawsuit, it advocated for an end of cooperative compensation arrangements.

Narodny expects the DOJ will not approve of this settlement, since they want commissions decoupled rather than rules altered, not changed altogether. He expects there will be genuine change by this summer – with buyers paying their own way while potential investors being required to cover fees directly out-of-pocket.

Widely believed to help reduce costs associated with financing or home prices overall, which should come as welcome news given recent market conditions of record-high home prices and even some buyers opting out of using agents altogether.

Brokers will remain compensated somehow, even if the price structure changes. While the reduction or elimination of buyer’s broker fees should be reflected in the purchase price, according to Panebianco it may not happen that way as “the market sets prices, rather than how industries conduct deals”.

Final Thoughts
Industry experts remain hopeful that, ultimately, the National Association of Realtors settlement will ultimately prove beneficial to the real estate industry.

Panebianco noted that, due to the National Association of Realtors settlement, buyers and investors will now have more leverage when negotiating commission fees with brokers – likely leading to an uptick in deal volume which has generally decreased over recent years.