$418 Million NAR Settlement Alters Realtor Compensation Nationwide

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The real estate industry has experienced a roller coaster of prices and interest rates in the past decade. The newest shakeup will impact licensed agents themselves, as the National Association of Realtors will implement new rules this month that alter industry-wide compensation structures.

New Rules and Their Impact

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The new rules will go into effect on August 17, impacting how Realtors are paid for their work, time, and effort in buying and selling homes. The rules are a result of a March settlement by the trade group the National Association of Realtors (NAR).

The $418 million settlement eliminates informal norms and rules that have thus far regulated payment structures between sellers and buyer and seller agents.

Historical Commission Practices

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Historically, it was expected but not required that home sellers pay a commission, usually between five and six percent, and the buyer’s and seller’s agent split the commission.

Industry Insiders’ Perspectives

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Some industry insiders believe that the new arrangement will usher in a new era for the real estate industry, causing many agents to leave the field and making way for innovative and disruptive entrepreneurs to transform the expensive marketplace for home sales.

Expert Opinions on the New Changes

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Leo Pareja, CEO of eXp Realty, said, “This is a grand social experiment in an industry at scale. I’m bracing my agents for the ‘messy middle.’ I fully expect a lot of confusion.”

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Several lawsuits argued that the standard commission-based compensation structure violated antitrust law, which the NAR disputed by saying that commissions were never set or legally binding but were negotiable and based on collective voluntary professional norms.

Settlement and Rule Changes

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The NAR settled the lawsuit via a payout and an agreement to change two significant rules. First, agent compensation details cannot be included in the multiple listing services (MLS). However, compensation details can be communicated in other ways, such as on the phone, in person, and through other mediums.

New Requirements for Buyer Agents

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The second change included in the NAR settlement is that buyers’ agents are required to discuss compensation at the beginning of a relationship with a buyer so the buyer understands the agent’s relative interest in the transaction.

Buyer Agent Agreements

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Starting August 17, buyers and buyers’ agents must have a written agreement before the agent shows any homes to the buyer. This ensures buyers know they are responsible for compensating their own realtor if the seller does not pay the commission to the buyer’s agent. Eighteen states already require buyer agent agreements.

Projected Impact on Commissions

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Some industry analysts project that commissions could fall by one-quarter to one-half, a steep decline for realtors reliant on the past commission structure.

Potential for Disruption

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Some visionaries see the potential for flat-fee and discount brokerage models to disrupt and transform the industry.

For example, owners of high-cost properties could potentially sell their homes for the same transaction cost as someone with a property at a fraction of the cost. The paperwork portion of the transaction is likely not so dissimilar that it would warrant a significantly higher transaction cost.

Innovative Business Models

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Another potentially viable business model is one where agents can bid to represent sellers, paying sellers to sell their homes and earn a commission on the property. The company Redy does just this.

AI in Real Estate

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Other companies, such as Flyhomes, a traditional real estate brokerage, have created an AI chatbot to answer homebuyer questions in place of a licensed realtor.

Flyhome chief strategy officer Adam Hopson said, “Consumers don’t know this is coming. When they decide to buy a home and find they have to sign a contract, they may say, ‘Whoa, what is this?’ We think this will drive them to find information from other sources. We will be one of those sources.”

Future Outlook for Realtors

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It remains to be seen how the new rules will impact realtors who spend many uncompensated hours with clients, hoping to ultimately make a sale at the end of the time investment. Some experts told CNN that they expect to see experienced agents favored above newer agents, as buyers may be less willing to enter into a legal relationship with a less experienced agent.

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