An Update on the NAR Settlement and its Upcoming Changes

The recent National Association of Realtors (NAR) settlement will bring significant changes to the U.S. real estate industry and corporate relocation programs. This update outlines the key developments set to take effect on August 17, 2024, the primary changes, and their anticipated impact on buyers, sellers, and corporate relocation initiatives.

Key Changes Starting August 17
The upcoming NAR settlement will implement several notable changes to real estate practices across the country:

1. Elimination of MLS Compensation Offers: NAR will remove the commission field from its Multiple Listing Services (MLS). While this will eliminate upfront compensation offers, real estate agents can still negotiate commissions directly with buyers and sellers off the MLS platform.
2. Mandatory Buyer Representation Agreements: NAR will require written buyer representation agreements that specify the payment amount before real estate agents can show homes to prospective buyers. This aims to provide more transparency around commission structures.

The settlement is currently pending final court approval, with a hearing scheduled for November 26, 2024. If approved, NAR is set to pay $418 million to resolve the case over the next four years.

Impact on Buyers and Sellers
The changes stemming from the NAR settlement are expected to have several implications for both buyers and sellers:

• Buyer Costs: Buyers may need to cover a larger portion of agent commissions, which could disproportionately affect lower-income and first-time homebuyers. This may require some buyers to adjust their housing budgets accordingly.
• Negotiations: Sellers who choose to reduce or eliminate commissions for buyer agents could face longer selling times, as buyers and their agents must negotiate commissions on a case-by-case basis.
• Dual Agency and Unrepresented Buyers: The settlement may lead to an increase in dual agency scenarios, where a single agent represents both the buyer and the seller. However, this practice is illegal in some states. Unrepresented buyers who use the listing agent could also be at a disadvantage in the negotiation process.

Impact on Renters
The NAR settlement also has implications for the rental market:

• Tenant Representation Agreements: Renters may now need to sign representation agreements to guarantee broker compensation, potentially increasing the financial responsibilities for those seeking rental properties.
• Regional Differences: In areas where tenants already commonly pay broker fees, such as New York and New Jersey, the impact on renters is expected to be less significant.

Impact on Corporate Relocation Programs
The changes stemming from the NAR settlement will also require adjustments within corporate relocation programs:

• Adjustment Period: It may take a year or more for real estate markets to fully adapt to the new commission practices. During this transitional phase, mobility programs will need to ensure that their relocating employees have access to quality real estate agents who can navigate the evolving landscape.
• Policy Changes: Mobility programs may need to revise their policies to better support buyers with the increased commission costs. Exceptions to standard policies could become more common if programs are not updated to address the new realities.
• Financial Implications: If reimbursed buyer agent commissions are considered a taxable expense, this could increase costs for mobility programs. Companies may need to adjust their policies or budgets to avoid negatively impacting employee recruitment and retention.

Financial Considerations
The NAR settlement will also have financial implications for various stakeholders in the real estate and relocation industries:

• Referral Fees: Reduced agent commissions may lead to a loss of revenue for Relocation Management Companies (RMCs) that rely on agent referral fees as a source of income.
• Contract Changes: Companies should anticipate the need to revisit their contracts and pricing structures with RMC partners as the market continues to evolve in response to the settlement.

Next Steps for Companies
To effectively navigate the changes brought about by the NAR settlement, companies should consider the following steps:

• Education: RMCs are actively training their teams on the implications of the settlement. Mobility programs should also educate their relocating employees on the new buyer agency agreement requirements and consider providing an optional Addendum to Buyer Agency Agreement.
• Industry Monitoring: Industry organizations, such as the Worldwide Employee Relocation Council, have subcommittees dedicated to monitoring the ruling's impact. Engaging with these groups can help companies better understand and adapt to the evolving landscape.

The NAR settlement will have far-reaching consequences for the real estate and relocation industries. Companies should proactively educate their employees, update their policies as a new norm is established, and collaborate closely with their RMC partners to ensure a smooth transition. Continuous monitoring of the situation will be crucial in developing best practices for relocation policies and programs. 

Here are some additional industry resources for monitoring the situation:

• Beyond the headlines: The National Association of Realtors (NAR) anti-competition settlement
• How Buyer Broker Compensation Lawsuits Will Affect Renters
• What to keep in mind as NAR’s ‘remarkable deal’ becomes reality

Added as of 8/7/24: WERC published their survey results on “U.S. Buyer Broker Compensation - Corporate Policy Survey Results” and you can download that from here.