What The New NAR Rules Mean For Residential Real Estate

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What The New NAR Rules Mean For Residential Real Estate

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A Deeper Understanding of What The New NAR Rules Mean For Residential Real Estate

What The New NAR (National Association of Realtor) Rules Mean For Residential Real Estate. On the 17th of August, a new set of rules will take effect, prompted by a recent class action lawsuit. This event is shaking up the real estate brokerage industry nationwide and it’s essential that we understand its implications.

Understanding the Lawsuit

A few class action lawsuits were filed against NARA, as a challenge to their commission practices. These lawsuits claimed that NARA’s existing rule, which demands homeowners to offer a commission to the buyer’s brokers for the listing of their property in the MLS system, restricts competition and inflates costs. Such activity was alleged as a violation of antitrust laws, creating an unfair market, and artificially increasing commission rates.

On April 24th this year, federal approval was granted for the settlement of these lawsuits, which set the pace for new rules starting August 17th. The settlement also resulted in heavy pay-outs by several real estate brokerages. To put it in perspective, Anywhere Real Estate had to pay $83.5 million, Keller Williams $70 million, Compass Real Estate $57.5 million, and ReMax $55 million just to name a few. The NAR themselves paid the highest at $418 million.

The New Rules

The Multiple Listing Service is no longer allowed to display a compensation field for buyer agents. Instead, an optional field named “Seller Concessions Offered” has been introduced. It provides the seller with an option to advertise a precise amount of cash that the buyer can utilize as they see fit.

Prior to touring a single property, both parties need to sign a buyer representation agreement specifying the compensation that’s due to the buyer’s agent, whether or not the seller offers a commission. The compensation agreed upon ought to be a fixed dollar sum or a sale price percentage. From August 17th, buyers will have no option but to sign this agreement, if they plan to view a property or even a virtual tour.

Some of the NAR Rule changes:
#	Old Rules	New Rules
1	Buyer Agents were compensated using MLS’s Compensation Field	“Seller Concessions Offered” replaces the Compensation Field in MLS
2	Buyer Agents could show houses without an agreement about paying commission involved	Buyer and Agent must sign an agreement specifying commission before viewing properties

New Rules, New Scenarios

Illustrating the implications of these new rules, I’ve outlined a few scenarios. The first one is about a seller refusing to pay the commission causing a potential buyer to look out for other properties. With the second scenario, the buyer is educated and demands the agent to find homes where the seller offers a 2.5% concession. It results in steering, which is strictly criticized by the DOJ. Lastly, if the buyer chooses to go unrepresented, they either get brushed off as an inexperienced buyer by the listing agent or might get taken advantage of for the same reason. It’s important to note that these scenarios can significantly disadvantage first-time homebuyers.

One negative outcome from these lawsuits is that they overlook the substantial value that buyer agents bring to the process. Lack of clarity about value often leads negotiations towards price, which isn’t ideal. As you ponder over these changes, I encourage you to stay aware and educated.

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