Local News

NAR Lawsuit – What does it mean for you?

NAR Commission Settlement what does it mean for you in Texas

The real estate industry is facing significant changes due to a proposed settlement by the National Association of Realtors (NAR). These changes will impact buyer representation and compensation, leading to uncertainties and complexities for both buyers and sellers. Experienced agents will play a crucial role in guiding clients through these changes and advocating for their best interests. The shifting landscape may also require adjustments in transaction structures and financing approaches. Despite these challenges, professionals with years of experience are prepared to navigate the evolving market and continue serving their clients effectively.

The latest news cycle of swirling headlines regarding the National Association of Realtors (NAR) Lawsuit and settlement might be a little confusing for consumers, depending on whose spin of the information you are hearing. With all the changes in the real estate industry, if you are thinking of buying or selling in the near future, read on. As with anything now days, you have to take a step back and look at the facts and then digest them for what it means for you and where you live. Nothing is ever black and white, cut and dry. Everything is nuanced. And every market and every situation is different.

As a 20 year professional, full time agent in the real estate industry it is, and has always been, my job to look at all the information and help my clients decipher what it means for them in their unique situation. That will never change. I am here to help you better understand how the new market affects you, either as a buyer or a seller.

Keep in mind, this news of the moment is based on a proposed settlement by NAR that still has to be approved by the DOJ with hearings not set until November 2024 as of now. NAR is, however, proactively implementing the proposed settlement by August 17th of this year with new MLS rules. Agents who are members of an MLS that is part of NAR will have to abide by these new rules. There are agents and brokerages that are not members of NAR. It’s unclear if these will be protected in these settlements (likely not) or if they have to join NAR to be protected from future lawsuits. Still a lot of unknowns. There will likely be more back and forth and a lot of contract and procedural changes with state and local governing bodies and local MLSs that have to be sorted out in the industry. In the mean time, nothing is set in stone yet. So far any reporting by the “media” has been one sided or misinformed, as the NAR President discusses at the end of this article.

NAR MLS Policy Texas

#9 is going to cause the most confusion with the public and will likely put buyers in positions of feeling like they have to make a choice between getting a house or being represented. Buyers who are already struggling to come up with a down payment and closing costs may feel like they can’t afford an agent on top of that (per the now required buyer agency agreement). This part of the ruling may affect cash strapped and/or inexperienced buyers more unfairly than buyers with more money, institutional buyers, investors with cash, etc. But, an experienced agent can mitigate this in many ways. Being represented by an experienced agent when buying a home has many benefits, most importantly looking out for your best interests, not the sellers. More on that later in this article.

I’m sure the current Buyer Representation agreement will be revised based on these changes that NAR is requiring starting August 17, 2024. NAR has pushed creation and enforcement of these contracts to local the MLS associations, which is causing more questions and concerns. Guaranteed, there will be new gimmicks and offers out there by third party for-profit listing aggregators to woo buyers and lock them into contracts with their agents who pay for leads. Or there may be new gimmicks for buyers to take out second loans to pay for representation. I hope not! Which is why it is even more important now to work with an agent who understands how all this works and can guide you in the right direction so you don’t get caught up in something that does not make good financial sense for you.

Before signing a Buyer Representation Agreement with any agent, it is critical to meet with them, learn about their experience and discuss your goals, situation, finances and market conditions – in advance of starting to look for homes. It will also be critical to meet with a local lender to understand your options when negotiating agent fees as part of the price of the home or if you are able to pay out of pocket. In order to navigate this new market and not get burned, you need to have a game plan with your agent and your lender on the various scenarios that could arise and how you will navigate them.

Here is some good info that helps to clarify a lot of the nuances and answer the questions confused buyers (and agents) are asking now.

With all the changes happening in the industry, in reaction to these class action lawsuits, conversations with buyers and sellers will change, our contracts will change, our procedures will change, lender processes will change, loan products will change, appraisals will change and negotiations will change and become even more nuanced. In the short term, we, as agents, will be battling misinformation while still trying to serve our clients at the highest level and look out for their best interests in uncertain and confusing times. Negotiations will be more difficult as agents, lenders and consumers work through understanding all the changes. Inexperienced and untrained agents will be challenged, which will challenge everyone else. It will be frustrating for buyers, sellers, lenders, appraisers and agents. Opportunists will prey on misinformation and confusion. People will get burned. Buyers and sellers beware.

Sadly, like most class action lawsuits, the people benefiting financially from these lawsuits are the attorneys. NAR and major brokerages are settling so the industry can move forward and not drag this on for eternity. Sellers participating is these class action lawsuits will likely get very little compensation out of this, if anything – much like in any class action lawsuit. But that’s not to say that some changes aren’t a good thing for the industry. I actually welcome these changes. But until the dust settles, it will be the wild west.

Will these class action lawsuits bring beneficial change to the industry? Yes, in time. Was it a necessary change? Yes, but it depends on how this all plays out and who you ask. This big shake down isn’t really going to change much for buyers and sellers, except policy and procedure changes for agents. Supply and demand always has and always will dictate market prices. But, these changes will definitely force agents to know their contracts, explain everything to their clients and make sure everyone fully understands how everything works, as it should be. Experienced professional agents do this already. It will certainly force part-time hobby agents and untrained agents to step up their game, which is a good thing. However, most consumers who haven’t been involved in a real estate transaction, wouldn’t know a good agent from a bad agent, which is probably how we got here. That’s a whole other topic.

Why did these lawsuits come about in the first place? Read More Here. Commissions have always been negotiable. In our local MLS, listing brokerages could offer as little as $1 to a cooperating brokerage bringing a buyer. But the issue, as stated in the lawsuits, is that buyer agent compensation inflated homes prices and buyers should negotiate the commission their agent is making and it should not be already baked into the price of the home.

As always, sellers are free to not use an agent to sell their home, it’s called for sale by owner (FSBO). There are already “entry only” brokers who just put the listing in MLS for a flat fee and the seller chooses if they want to add on cooperating compensation. In Texas, the listing agreement states that the seller is compensating the listing brokerage ___% for services performed. This is completely negotiable, always has been.

Then in a subsequent paragraph it states what the listing brokerage is offering to an agent who brings a buyer, cooperation with other brokers. This is the amount that is offered in MLS to a buyers agent who brings a buyer who makes an offer on the listing. With the new rules, this offer of compensation will not be listed in the MLS.

In theory, the attorneys say that these changes could bring down prices because sellers wouldn’t have to openly compete with other listings offering compensation. In theory… So in the mean time, how do we know if a recent sale offered compensation, which is part of the final sale price. It’s unclear if that information will be allowed in MLS.

Texas Listing Agreement 2024 Cooperating with other brokers.

Cooperating broker compensation has been a cost of selling since the 1990’s. The broker offers to share the full compensation with other agents representing buyers if they bring a buyer to the home. Consider this, the buyer is bringing the money to purchase the home, so really if you think about it, it’s the buyers money first. They are paying a certain price for the house which includes buyer agency compensation. Market value of a home is what the seller is willing to sell it for and what the buyer is willing to pay. It’s a mutually agreed upon price and they each have their own representation. That cost has always been on the seller side of the closing statement because it was a contractually agreed upon cost when listed. This should have been the number one argument in this case by the defendants in my opinion. Not sure why that point was lost. The problem is not every state’s listing agreements are worded this way, but this is a national lawsuit.

In Texas, dual agency is not permitted, unless agreed to by both parties in writing, which would then be an Intermediary relationship. A Realtor in Texas either represents the buyer, the seller, or is in an Intermediary Relationship. It’s still unclear how this will be handled in Texas if a buyer chooses to not be represented when making an offer on a home listed by a Realtor. The seller decides upfront, before the house goes on the market, if they want to enter into an Intermediary Status. This paragraph will likely be reworked in this new landscape if potentially more unrepresented buyers.

There are a lot of nuances and complications in how this will roll out – number one is how will buyers pay for their buyer representation? As part of this settlement, a buyer agency agreement with an agent will be required BEFORE showing homes and buyers agent compensation will be negotiated up front between the buyer and their agent – before being shown properties. This is not new in Texas. We already use a Buyer Representation Form. The big difference is that the listings in MLS will not show if the broker is offering cooperating broker agent compensation. Offers of buyers agent compensation in the MLS will be removed starting August 17, 2024. In the short term, this is going to cause a lot of confusion and uncertainty.

Since per the listing agreement, the broker is sharing a portion of their total broker compensation with a cooperating broker representing a buyer, those fees will be negotiated up front with the seller and determined if offered. Which is the way it has always been. It will be interesting to see how listing agents explain this to their sellers. Many sellers may still choose to offer buyer agency compensation because it will expose the home to the largest number of buyers. But the compensation will not be listed in the MLS.

Note: there are ways to work fees into the contract, even if the seller says they will not allow their broker to share compensation to pay a buyers agent, but it will take some skill to explain this to everyone involved (even listing agents and sellers) and also more communications with the buyer’s lender on what buyers financial and loan situation allows. This is going to be the worse and most frustrating part of this whole mess. In the short term, it will cause confusion, frustration and uncertainty for everyone involved.

Since buyer agent compensation will not be offered in MLS as of August 17, 2024, how does a buyers agent and their client know if they will get paid if their buyer wants to make an offer on a home? With the new rules, buyers must sign an agency agreement with an agent in order to see homes. That agreement states the buyer will compensate their agent a negotiated amount at closing. This has always been the case, but the amount was in MLS. Now it’s an unknown. If the buyers agent can’t work their fee into the contract or the seller won’t agree to rolling it into the price of the home (still has to appraise), the buyer will be on the hook to pay their agent. Again, this has always been the case, except in our market, most listings offer compensation and it is listed in MLS, so a buyer rarely had to come in with cash to pay their agent. It’s “baked into” the price of the home.

So now that buyer broker compensation will be unknown prior to making an offer, some extra leg work and negotiations will need to be done to help the buyer cover their agent’s fees if they don’t have the cash to do so. If a buyer is under representation and then circumstances arrises where they cant pay their agent, what happens? How will brokers even enforce these agreements? This is yet to be seen and will be different in every market. Some buyers may happily pay out of pocket for an agent to represent them. They may feel like they can get a better deal on the home by taking that out of the negotiations. I would agree. But not every buyer has that ability.

So, how will this logistically play out? Will agents need to call the listing agent for every listing they want to show – and hope the listing agent answers the phone – and ask if the listing brokerage is offering cooperating compensation? Will buyers agents even be allowed to ask that question? Will listing agents even be allowed to answer that question? Still unclear! Or do buyers agents show the homes their buyers want to see and then figure out with their client how to structure the offer so they get paid through the transaction. Buyers will have to decide, based on the outcome of negotiations, if they want to go through with their offer or not. It’s going to get unnecessarily complicated and agents who don’t understand how to structure and negotiate offers are going to cause a lot of problems for themselves and clients in the short term, until everything is established as the new norm.

Unrepresented buyers maybe become more common. That opens up a new can of worms for sellers. If a Seller hires an agent to represent them, but a buyer comes along without an agent to represent them, it becomes complicated in Texas because dual agency is not allowed. The seller would have to decide if they want their broker to become an intermediary (meaning just impartially handle the transaction with no partial guidance to seller) or not agree to such, in which the buyer would have to decide if they want to be an unrepresented customer in the transaction, while the agent represents only the seller. Remember, the Listing Agent has been hired by the seller and has a fiduciary duty to look out for the sellers best interests – not the buyer. If the buyer decides to go directly to the sellers agent in order to avoid paying a buyers agent, in Texas since dual agency is prohibited unless the seller agrees, the buyer will likely be giving away their negotiating power before they even make an offer! This also opens the door for some unethical behavior and/or misunderstandings – which leads to law suits.

If you are thinking of buying soon, do not forgo having an agent representing you! Find an experienced agent and lender who can navigate this new market with you. We just have to adapt. Just like we did during the 2008 housing crisis.

These situations can bring on a lot of liability for a seller. As much as a seller can disclose everything, an unrepresented buyer, even by choice, may later feel that they were taken advantage of in some way or something was not disclosed or they didn’t receive all the information they felt they should have or they paid too much because no one gave them comps or whatever. All of these reasons is why a buyer should be represented so they have someone looking out for them and giving them information that affects their decision to buy or not. But what if they think they can’t afford to be represented or no one ever had a conversation with them about how can can be represented? Problems will arise.

Another important topic is that of consumer protection. These settlements will be bad for buyers and sellers and cause a lot of confusion and misinformation. Listening to the media read from their scripted teleprompters and the keyboard warriors spouting off on social media with limited knowledge of how transactions and market forces really work, is so far off base it would be laughable if it weren’t so detrimental to consumers. 

VA and other loan types do not allow agent compensation as part of closing costs. Since buyer agency compensation can’t be a line item in buyer closing costs for some loan types or if the buyer doesn’t have enough cash to pay their agent, on top of downpayment and closing costs – this will create a hardship for many buyers (especially VA) and put them in a weaker negotiating position for homes. Or they may choose to have no representation because they feel that they can’t afford it. If they have already signed a representation agreement, they may not be able to get the home they want. However, the Veterans Administration signaled in May 2024 that they will suspend rules that block veterans from paying agents when buying homes following pressure from the real estate industry. If you are a VA buyer, check with your Lender to see what the status is on this decision.

Lending guidelines will need to change to accommodate this shift in whose side of the closing statement this fee is recorded. There will likely be changes in lending guidelines that agents need to understand or at the very least, work with a professional lender who understands how a buyer fits in to this new landscape.

The reality is that supply and demand is what determines market value. Every market will be different in how this all plays out. In a sellers market, sellers may be less likely to negotiate with buyers asking for closing costs assistance to compensate their agent. But when it’s a buyers market and a seller needs to sell, they may feel that they can attract more buyers by allowing their broker to offer cooperating compensation. Think about this, the buyer is the one bringing the money to the seller to purchase the home. So it is the buyer’s money first. Although, the way the listing agreement is structured and the fact that agency fees are on the sellers side of the closing statement, sellers feel like it’s their “profit” that’s being taken away paying agents. But, without the buyers money, there is no profit. So depending on the market, the perspective can change. Lending guidelines will likely need to change to accommodate these costs moved to the buyer side of the balance sheet if needed or allow more seller contribution towards “closing costs”. This is still an unknown.

Another issue is appraisals. So how will the market price of homes be determined if recently sold homes (comps) included buyer broker fees and some do not? Will the MLS be allowed to disclose that information in the listing at closing? It’s going to get more complicated to do comps for listings and making offers. Will appraisal guidelines need to change to accommodate which homes offered compensation as part of the price and which ones did not? Since over 90% of homes sold in our local market offered 3% cooperating compensation to buyers agents, which has been reflected in the sales price of the homes, going forward, will this be considered by appraisers and listing agents for new listings? If a home sells in the near future without paying buyer agency (as part of the sales price) will appraisers be adjusting the price based on that? Where will they get this info? Will sellers who are not agreeing to offer compensation be pricing their home 3% below the last sale where part of the price included buyer agency compensation? Still a lot of unknowns. If you are thinking about selling, talk to an agent who understands all these changes and your local market and how it affects you and the sale of your home.

The media makes it sound like this will make home prices lower by 3% or more right off the bat. Highly doubtful. Most buyers want and need an agent to represent them. And also, good ole’ supply and demand. This is only going to cause confusion and uncertainty in the short term – which could affect the market, combined with high interest rates and inflation. If anything, rates and inflation may drive down prices, not these frivolous lawsuits. In the short term, there will be sellers who feel that now they don’t have to compensate a buyers agent to bring them a buyer, because that’s what the news said. They may get stubborn on negotiations. It will take two professional agents working to create a win-win situation. Or the person with the most money will just win. Is that where we are headed? Not a good place for already cash strapped buyers.

We also need to look at how housing has now become a commodity traded on Wall Street. Venture capitalists investing in the housing sector (tech, mass production, corporate owned rentals, etc) has caused housing to become volatile with the infiltration of all of this big monied interests. The real estate industry is big business. Agents have to spend more money than ever to get their listings ready and noticed, pay for buyer leads, invest in systems and technology, pay brokerage fees, MLS dues, continuing education and everything else. Agents are independent contractors. Every dime spent is out of our pocket. And we are 1099, so we have to pay Uncle Sam too out of our commission proceeds. So as much as agents are being attacked, look how much big business is making off agents and consumers. They want a bigger piece of the pie. These lawsuits were never about saving consumers money. They are about cutting out the largest line item in a transaction, agent commissions, to make it more profitable for corporate interests. Does this really benefit the consumer? Usually now and is yet to be seen. Follow the money. 

I’m not at all saying, that it’s bad to invest in a home as a long term wealth building strategy, but it’s not as cut and dry anymore. There are a lot of things affecting the real estate market that historically were not a factor. Anyone considering a purchase in today’s market has to consider all kinds of factors. Time plays a vital role in that too.

The good news for the industry, and maybe even the reason all these lawsuits came about, is that only the professionals will remain. Agents will have to show their value and earn their commission – which I have always strived to do. Combatting misinformation will be frustrating, but it will pass. I’ve been an agent since 2004 so this is just another change to navigate. Unfortunately NAR and even MLS membership in the past has been about getting more members. Maybe we need less members and focus on professionalism. I’ve been complaining about this for at least 15 years…

Going forward, I will continue to represent my clients, both buyers and sellers, always looking out for their best interests. I will help them navigate all of this information so they can make the best decisions to meet their goals. My 20 years experience and expertise has value, so I will continue to work with those who appreciate having me on their side.

As always, I am here to help you and anyone you know with your real estate needs.

If you ever want to sit down and have a chat about all this, give me a call. There are so many nuances that I can’t even cover here. And every transaction it will affect the next one. And every state is different. Every market is different. And as this rolls out, things will change. If you want to know how this all affects YOU, let’s meet.

Good luck out there! Hope this helped.