What the Proposed NAR/DOJ Settlement ACTUALLY Says
On March 15, 2024, it was announced that the National Association of Realtors (NAR) had reached a proposed settlement with the Department of Justice. As reported in Politico, “The deal, which still must be approved in federal court, would mark an end to all the litigation claims the powerful lobbying group is facing from home sellers, according to NAR.”
With respect to this proposed settlement, there has been an incredible amount of misreporting and misinformation put out by the media. Here’s one example, from that same Politico article:
Michael Ketchmark, lead attorney for the plaintiffs in that case, cheered the deal. “The reset button was hit today in the housing market,” Ketchmark said. “Homeowners are no longer required to make offers of compensation to buyers’ agents when they’re selling a home in our country.”
What’s incorrect about that is that sellers were NEVER “required to make offers of compensation to buyers’ agents.”
To clarify that, sellers were never required to offer any specific amount to buyers’ agents, and, in fact, could offer literally $0.
What Mr. Ketchmark should have said was this:
“Homeowners are no longer required to put a number in the data field called ‘Buyer broker commission amount’ in the MLS.”
Sellers are still free to effectively compensate the agents who ultimately bring the buyer who purchases their home (e.g., via negotiated concessions, via the listing agent sharing a portion of their negotiated commission with the Buyer Broker, etc.), and, from our experience (because, again, sellers have ALWAYS had the option of paying those agents little or nothing), most will likely continue to do so (more on that in a moment).
That said, here are the actual highlights of the proposed settlement:
STATUS & TIMING: As already noted, while the proposed settlement has been agreed to by both NAR and the DOJ, it still requires Federal court approval before it is made final. If it is approved, it becomes effective July 15, 2024. So, until then, practices and customs within the industry will likely remain status quo.
COMPENSATION TO BUYER BROKERS: Also as already noted, the proposed settlement does NOT preclude sellers from effectively compensating Buyer Brokers. It simply doesn’t allow that information to be disclosed anywhere within the MLS. Instead, agents and brokers will have to negotiate compensation directly with clients — outside the MLS. Why this change is unlikely to significantly influence the amount of compensation being offered to Buyer Brokers:
Because the same information CAN be disclosed elsewhere: The proposed settlement agreement does permit that same information to be disclosed elsewhere. For example, listing agents will be free to publicly post that offer of compensation on their own websites. Our prediction is that someone will quickly seize this opportunity and create a website where listing agents can post the amount of compensation being offered to Buyer Brokers on their various listings. Ergo, in the end, nothing – other than the LOCATION where those offers of compensation to Buyer Brokers are disclosed – of significance will have changed.
Because market fundamentals have not changed: More specifically, nothing has changed in terms of what actually drives the amount of those offers of compensation to Buyer Brokers, which have ALWAYS been (1) entirely negotiable between agents and their clients, (2) entirely driven by local market conditions, and (3) entirely driven by basic economic realities.
From a more practical perspective, sellers don’t make offers of compensation to Buyer Brokers because they want to, or because they are overly generous or altruistic. They do so because they understand how basic economics work, and because they understand basic human nature.
That is, if you want to incentivize someone to do something – in this case, bring a potential buyer for your home – it helps if you offer to pay someone to do exactly that.
They also understand that, if they decide to offer no compensation to Buyer Brokers – which, again, they have always been free to do – they may end up disadvantaging themselves vis-à-vis their local on-market selling competition.
To be clear, we’re not making any value judgments here (that is, we’re not saying these things are “good,” or that they are “bad”). Nor are we telling any seller anywhere what to do. Our job is to provide objective, honest information, data and advice to our clients, to let them make their own decisions, and then to honor and respect those decisions.
But what we are saying is that – love them or hate them – these are the realities that shape the decisions made by sellers when they decide to put their homes up for sale, and these are the things that are always discussed between listing agents and sellers within that specific context. And none of these economic realities/market fundamentals are in any way impacted by the terms of the proposed settlement between NAR and the DOJ.
BUYER BROKER AGREEMENTS: While agreements between Buyer Brokers and their buying clients have been around for decades, what will change if the settlement agreement is approved is that those agreements will then become mandatory. Further, Buyer Brokers will be required to formally execute a Buyer Broker Agreement BEFORE they can legally show a home to a buyer (currently, Buyer Brokers are only required to formally disclose their agency status to buyers before showing them homes). We think this is a good thing, as it forces Buyer Brokers to discuss certain potentially complex topics with their buyers earlier in the process than most agents do currently (which is good for both agents and buyers). That said, this is likely another “much ado about nothing” change, as it really only affects the timing of when certain things happen, not the substance or nature of those things.
So, that’s what the proposed settlement agreement between NAR and the DOJ actually says.
You can draw your own conclusions as to how much, or how little, this will likely affect the real estate industry if it is ultimately approved…