The NAR Anti-Trust Settlement: Let’s Clear the Air
| In the media much has been written and discussed, but misunderstood, about the $418 million settlement of the National Association of REALTORS® (NAR) Anti-Trust suit. Let’s clear the air. The proposed settlement could be a positive resolution. It gets rid of a cluster of copycat cases that would have embroiled the industry for years to come at huge financial expense. Here’s what we know: For the consumer it doesn’t change much. It will not bring down the price of homes. It will not cost less for buyers to buy a home. Sellers who refuse to pay a buyer’s commission will not reduce their listing price. They will pocket the difference, at risk of not exposing their listing to the widest audience possible. The settlement has changed two things: 1.) Buyer agents cannot show a home listed on the Multiple Listing Service (MLS) without a Buyer Agency Agreement. 2.) Sellers will continue to offer compensation to a buyer’s agent. They will do so to attract more buyers, and yield a higher net price. It just cannot be on the MLS platform. New pathways for compensation will materialize. Some personal history and perspective. I graduated from law school in 1975. In 1978, I opened my own law firm, and began to focus my practice on real estate law and residential closings. Inflation was mounting and by 1980 interest rates ascended to 20%. Mortgage lending and with it closings came to a screeching halt. So, what can a young lawyer with a young family to feed do? l decided to do an end run around the banks and developed a specialty in “creative” financing. I learned, practiced, developed strategies, and then began to teach REALTORS® at more seminars than I care to count on how to sell homes with “wrap-around” mortgages and “installment land” contracts. It was risky stuff, first because it was new and untested. Second, it required clarity of thought, skilled draftsmanship, and execution to minimize any risk and default on the underlying mortgage. Third, it required all parties, buyer, seller, and REALTOR® to be fully informed and engaged with eyes wide open. It helped to launch my career. Within a few years, as interest rates came down, I became the ”go-to-lawyer” in the State of Rhode Island for mortgage lenders and REALTORS®. By the early 1990s, amongst my clients was the Rhode Island Association of REALTORS®. It too was a disruptive time in the real estate industry. Theretofore selling agents working with buyers were classified as subagents for the listing agent. It created a fair degree of confusion amongst consumers who assumed the agent they were working with was “their agent”. Ergo the rise of “single agency” where the agents were bifurcated, an agent for the seller, and an agent for the buyer. Since that time there has been a back and forth flow, varying from state to state, between single agency, dual agency, and facilitator (Transaction Broker in Florida). Through it all there have been many anti-trust lawsuits filed against NAR, none of which really amounted to anything until March 15th of this year. NAR settled a class action suit that will have national implications on buyer agent compensation. It does not mean that the costs associated with buying a home are going down, nor that the role of the REALTOR® is diminished. It does mean that the platform for determining how Buyer REALTORS® are paid will change. The settlement is not locked in. It is subject to the Court entering its Final Order, scheduled for July 2024. It will take months for the market to adjust to the new landscape, adapt “choice driven” market policies and procedures for Buyer REALTOR® compensation, but of the following I am certain: 1.) Although there will be some revised procedures for doing business, sellers will still be able to offer buyer-side compensation. It just will not be through the MLS. Buyer agent contribution will be noticed on other platforms and will be part of the seller/buyer negotiating process. At the listing presentation REALTORS® will discuss with sellers options and benefits of buyer agency compensation. 2.) Buyer Agency Agreements will be commonplace. Buyers will not be able to schedule showing appointments with their REALTOR® unless they have signed a Buyer Agency Agreement. The Agreement may be a flat fee, ala carte menu of pay for fee services, or a percentage of the purchase price. If there is an offer of compensation by the seller, which will remain a customary practice, it will be credited against the fee owed by the buyer to the buyer’s agent. In most instances the buyer will not be out-of-pocket. 3.) REALTORS® who cannot articulate their value will leave the business. It will have the unintended consequence of greater professionalism in the industry. Buyers, like sellers, will now be contractually bound to their REALTOR®. It will bolster the strong listing and buyer agent. 4.) Exceptional agents who can articulate their services will be able to charge more. Buying a home is not a frequent event. It’s complicated, with many moving parts and stakeholders. Deciphering through all the clutter in a digital information age, including a home’s worth, requires a trusted, steady hand, a rudder. Buyers will still need representation. 5.) Some attorneys, title agencies and residential lenders will try to bi-furcate their practices, obtain Broker licenses and engage in direct real estate sales. But market area knowledge and the complexity of RESPA (Real Estate Settlement Procedures Act) compliance for service providers, violations and conflicts of interest will create a risk vs reward imbalance. 6.) There will be sellers who will object to making an offer of compensation to the buyer’s agent. This will only strengthen the hand of the strong listing agent. It will most directly harm cash strapped first-time homebuyers, low-income buyers, minorities, and veterans. The Veterans Administration and secondary mortgage market, including quasi-public corporations Fannie Mae and Freddie Mac, will implement underwriting requirements, regulations, and practices that liberalize and authorize the cost of buyer agent compensation to be financed into the mortgage loan. This settlement is not going to shift housing costs. That’s a function of supply and demand. But, the price of a home and the commission paid is always negotiable. |
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