The NAR settlement and its consequences for mobility

The American real estate world is changing rapidly. In April 2019, a lawsuit was filed against the National Association of Realtors (NAR) and their four largest broker franchises. This class action suit was filed by a personal injury lawyer accusing NAR of collusion and price manipulation. In late October 2023 a Missouri jury found Keller Williams, NAR, and HomeServices of America liable for collusion. The NY Times “The Daily" podcast (episode: “The Bombshell Case That Will Transform the Housing Market”) suggested that this is a case of David and Goliath, where the little guys win against the big ones. 

As of March 15, 2024, NAR announced that it has reached a preliminary settlement agreement around ongoing litigation focused on broker commissions for residential home transactions. NAR agreed to pay $418 million over 4 years in damages to settle this and other real estate commission lawsuits, and has also agreed to abolish the “Participation Rule” that required sell-side agents to make an offer of compensation to buyer brokers/agents. This means that NAR has agreed to remove any reference within the MLS on buyer side broker commissions.  While some sellers may still elect to offer coverage to a buyers agent via a concession within the contract, it will no longer be marketed within the MLS. The change could happen as early as this July.

What many are contemplating is how the settlement and rule changes will impact agent (and broker) commissions in the coming years. Some speculate that it would likely accelerate a decline in the number of working real estate agents. Plus is currently participating in a recently formed ad hoc group organized by WERC that is focused on the litigation and its impacts to assess potential ramifications and considerations resulting from this announcement. 

Let's consider some thoughts on how all of these changes might affect relocation:

• We will likely see a focus on transparency with transferees around relocation home sales and purchases.
• Many predict that the commission on the home sale side will almost certainly change and buyers agent commissions will likely be reduced.
• Buyer agency/representation agreements will be required for many locations where a mobility-related home transaction may occur. Buyer agency/representation agreements would have to comply with standards outlined in the terms of the settlement and also account for state requirements that might be put in place as a result of the NAR lawsuit.
• Buyer agent compensation cannot currently be rolled into mortgage loans. Based on current agency requirements and policies, broker compensation cannot be financed under home loans, and this is not likely to change in the near term. As a result, buyers would have to directly provide funds for any compensation.
• The settlement may make it easier for homebuyers to negotiate fees with their own agents and could lead more buyers to forgo using agents altogether, which has the potential to drive down commission rates. 
• If buyers end up paying their own buy agents directly, then reimbursement of these commissions by mobility programs would be taxable to the employee and companies will want to consider whether they “gross up” on these taxable reimbursed expenses for employees. It's expected that most programs would initially treat the expense as they treat other taxable relocation related expenses currently.
• There will certainly be a change in the cost of employee home sale benefits.
• Revenue earned by relocation management companies through real estate referral fees may be impacted.

These are just some of the elements and issues of the real estate sales/purchase process that are anticipated with the settlement. For the full list of further considerations, see this recent article from WERC, NAR Settlement and Its Impacts on U.S. Real Estate and Talent Mobility. 

We encourage you to sign up ASAP for this WERC webinar: U.S. Buyer Broker Compensation Litigation – Impacts of Pending Settlements and Process Changes on U.S. Real Estate and the Talent Mobility Industry which will be Tuesday, April 2 at 11am PT. 

If you want to learn even more, try this article from the New York Times: Five Ways Buying and Selling a House Could Change. Stay tuned as our industry evolves and adjusts.