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The NAR Settlement: Transforming Residential Real Estate Transactions

Realtor Showing a Home
Realtor Showing a Home

The NAR Settlement:

In the ever-evolving landscape of residential real estate, a landmark development that has been in the works for some time now, but was finally approved by Judge Stephen Bough on April 24, 2024, that promises to transform the way transactions are conducted.

The National Association of Realtors (NAR) Settlement, a significant legal agreement, comes in the wake of controversy surrounding real estate commissions and the practice of cooperative compensation, raising questions about fairness, transparency, and the future of buying and selling homes in the United States.

In this blog post, we will delve into the NAR Settlement, examining its implications, the changes it introduces, and how it stands to reshape the residential real estate market.

Do you plan on buying or selling a home in the next 12 months?

  • Yes, buying.

  • Yes, selling.

  • Maybe, buying.

  • Maybe, selling

Background: What Is the NAR Settlement?

The NAR Settlement refers to a $418 million agreement that the National Association of Realtors entered into, marking a pivotal moment in the industry.

This settlement was reached after allegations and legal scrutiny over how real estate commissions are structured and the role of MLS (Multiple Listing Services) in the facilitation of these payments. The crux of the settlement is to address these concerns by implementing changes that promote transparency, fairness, and competition.

The key terms of the agreement include modifications to how commissions are negotiated and disclosed, aiming to dismantle long-standing practices that critics argue have kept commission rates artificially high.

The settlement's purpose is twofold:

  1. to rectify practices deemed anti-competitive, and

  2. to lay the groundwork for a more consumer-friendly real estate market.

Coverage & Scope:

The scope of the settlement is broad, covering over one million NAR members, including all state/territorial and local REALTOR® associations, association-owned MLSs, and brokerages with an NAR member as principal,

provided their residential transaction volume in 2022 was $2 billion or below. This wide coverage ensures that the settlement's impact will be felt across the entire industry, affecting how transactions are handled from the top down.

Practice Changes: How Transactions Will Evolve

  1. Negotiating Fees Upfront: A cornerstone of the settlement is the provision that allows home buyers and sellers to negotiate agent fees directly. This could lead to more competitive commission rates and even scenarios where buyers opt not to use agents, fundamentally altering the agent-client relationship.

  2. MLS Communication and Compensation: The settlement prohibits the publication of compensation offers in the MLS, compelling agents and brokers to find new ways to communicate these offers. This change challenges the traditional role of MLSs but also highlights their value beyond compensation communication.

  3. Written Agreements Before Showings: Another significant change is the requirement for written agreements before property showings, ensuring that all parties are clear on the terms of engagement from the outset. This requirement is currently limited to residential transactions.

  4. Impact on Home Sellers and Buyers: Both sellers and buyers stand to benefit from the settlement through potential cost savings and increased transparency. The changes encourage more negotiation and could lead to a more buyer-friendly market.

  5. Buyer Brokers’ Compensation: The settlement ushers in a new era for how buyer brokers are compensated, potentially disrupting traditional payment structures and offering both challenges and opportunities for real estate professionals.

Advice for Listing Brokers & Clients:

In light of these changes, listing brokers must adapt their advice and strategies, particularly regarding compensation discussions. The prohibition on MLS compensation offers necessitates a new approach to communicating and negotiating commissions.

Home with Sold on For Sale Sign
Real Estate Transaction

Conclusion: A Paradigm Shift in Real Estate

The NAR Settlement represents a paradigm shift in residential real estate, introducing changes that could lead to a more transparent, competitive, and consumer-friendly market. As the industry adapts to these changes, staying informed and flexible will be key.

HOL Automated Closing Portal:

The upcoming launch of The House of Law, P.C.'s automated closing portal is what we feel is the next step in this process. By creating standardized processes, automation and an error free portal that obtains all information directly from the buyers and sellers, the process will utilize conditional logic, premade document templates that are updated based on specifics of the parties and the transaction as a whole, calculate timelines and deadlines for disclosures, and inform the parties when everything needs to be submitted by in order to close on their planned date.

This portal will significantly streamline processes and allow realtor to focus on their core business of selling homes. This portal promises to simplify the closing process, offering a flat fee per transaction and minimizing the responsibility of realtors in closing transactions, allowing them to concentrate on what they do best.

As we navigate this new landscape, the potential for transformation is immense, signaling a new era for residential real estate transactions with increased quality of services for customers and higher volume of sales for realtors, a win/win for everyone.


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