NAR Lawsuit Update: What to Know

Adapting to the New Normal: How Buyer-Broker Commissions are Shaping the Market Post-NAR Settlement

Since the NAR settlement provisions took effect in August 2024, business has largely continued as usual, according to a recent survey by Real Brokerage. The survey of 300 agents revealed that 63% of respondents reported home sellers often covering buyer-broker commissions. Additionally, 21% indicated that home sellers occasionally showed a willingness to cover these costs, while 12% were unable to identify clear trends among their clients.

Although it is still early, data indicates no significant changes in average commission rates on either side of the transaction, suggesting that both buyers and sellers continue to value the crucial role agents play in facilitating home sales. The majority of agents (55%) reported that home sellers are offering competitive rates of 2.5% or higher. Meanwhile, 37% noted buyer-broker commission offers below 2.5%, and only 1% observed a shift toward flat-fee models. According to Real, these trends suggest that commission compression may not be as significant as previously anticipated.

Looking ahead, agents predict that buyer-broker commissions will either remain stable or see only a slight decrease from historical levels. Forty-nine percent expect commissions to settle between 2.6% and 3.0%, while 32% anticipate a range of 2.1% to 2.5%. Another 10% foresee commissions trending toward 1.6% to 2.0%. Outliers include agents who expect commissions to rise to between 3.1% and 3.5% or to drop to between 1.0% and 1.5%.

Generally, buyers must sign an agreement with the real estate agent that represents their interests.  While they may ask the seller to pay concessions to offset that amount, the agreement will obligate transferees to compensate their agent (in a buying scenario), if the seller does not agree.  

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We have seen the following amendments included in home purchase policy provisions:

If contracting with an agent referred by NEI and the seller decides not to cover the buyer agent compensation, the Company will provide assistance with the employee’s obligation.

• Typical new home closing costs and the agent’s commission normal for the area
• If a current homeowner, typical new home closing costs and agent’s commission with a cap of 3% as part of the Buyer Agency Agreement.
• Up to a total of 6% for both home sale and home purchase assistance for the employee to split, as needed, between both benefits.

After closing on the new home, employees must submit the Buyer Agency Agreement, the Closing Disclosure statement and a Relocation Expense Report to NEI for reimbursement.

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NAR Settlement Impact on Rental Transactions

Although the current NAR settlement does not address rental transactions, the situation is evolving, and it is possible that Renter/Tenant Representation Agreements may eventually become mandatory. New Jersey and Texas already require renters to sign an agency agreement before an agent can assist with rental showings. However, in New Jersey, since tenants are already responsible for paying the agent's fee, the only change is the requirement to sign the agreement.

In Texas, most landlords continue to offer a commission to the renter’s agent. This suggests that the financial impact on transferees and employers remains minimal. This trend is primarily seen with private landlords of single-family homes rather than apartment communities. If apartment communities do offer commissions, they typically deal directly with the agent. We are closely monitoring for any instances where agents request transferees to sign renter agreements and will track and advise on emerging trends.

Again, we continue to monitor the situation and train our single point of coordination Account Executives on the changes, impacts and what to watch for in buyer agency agreements so they can advise your relocating employees accordingly.

Please reach out to your NEI representative for recommendations on how to adapt your policies and practices to the latest changes in the U.S. real estate industry.

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Older Posts: June 17, 2024‍

National Association of Realtors (NAR) Settlement Provisions Go Into Effect

Barring any statement from the Department of Justice that would have caused a delay, the National Association of Realtors (NAR) Settlement provisions became effective on August 17, 2024. By September 16th, all Realtors (NAR members) & NAR related MLS organizations will be required to comply with changes to U.S. buyer broker compensation.

Effective August 17^th

• Buyers must sign an agency agreement with their own agent, which obligates them for that agent’s compensation.
• The MLS will no longer include any information regarding a co-operative commission for a buyer’s agent.
• Commission rates have always been negotiable, but brokers can no longer discuss what is “typical” in any given market.  Each brokerage will determine the minimum compensation they will accept for services offered to buyers and sellers.  
• The agent cannot accept more than is set forth in the buyer agency agreement, even if the seller offers more.

You’re not alone if your organization is uncertain how to adjust to the changes.  The Worldwide Employee Relocation Council (WERC) conducted a survey among corporate and government mobility professionals to understand how they plan to address the NAR proposed settlement. The survey included responses from 47 organizations, mainly large ones with over 20,000 employees. Key findings reveal that:

• 62% of organizations are still deciding how to handle home sales after the NAR changes, and 64% are undecided about home purchases.
• For those that have decided, 45% plan to cover the full buyer agent compensation for home sales, and 43% for home purchases if the seller declines to pay.
• 38% plan to amend existing policies, and 28% will update formal policies related to buyer agent compensation.

The survey serves as a guide for companies to navigate these changes, providing insights into industry trends and potential best practices.

The changes take effect across most of the U.S. but not everywhere. Here is a list of multiple-listing services that are adopting the rule changes. Every state, MLS and brokerage will have unique forms and requirements so working with a vetted NEI brokerage that has a relocation department, a relocation director who will partner with NEI and our clients when issues arise, and, most importantly, relocation trained agents who will be committed to looking out for the employee, has never been more important.

NEI is monitoring the release of standardized WERC Buyer Agency Agreement Rider documents/templates and has been training its single point of coordination Account Executives on the changes, impacts and what to watch for in buyer agency agreements so they can advise your relocating employees accordingly.

Please reach out to your NEI representative for recommendations on how to adapt your policies and practices to the latest changes in the U.S. real estate industry.

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Older Posts: June 17, 2024

NAR Settlement Update | Q&A

The recent settlement agreed upon by the National Association of Realtors (NAR) is soon poised to reshape the U.S. real estate landscape, including the relocation industry. This landmark decision will dismantle established commission structures, leading to an era of increased transparency, competition, and consumer protection.

Below are common Questions & Answers regarding NAR’s settlement practice as of today:

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When does it take effect?

• The NAR Lawsuit is currently scheduled to go into effect on August 17, 2024, but this date may be pushed back again. By September 16, all Realtors (NAR members) and NAR related MLS organizations will be required to comply with NAR settlement provisions.

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What is NEI’s position on the real estate agent commission ruling?  

• NEI recommends approaching this topic on an “as needed” basis for the next several months. Once the settlement is finalized and any Department of Justice requirements are clarified, NEI will have a better sense of the longer-term impact on who pays the buyer agent’s commission.  
• Eventually, policy updates may be needed to clarify exactly what is covered in those cases, but it is still too soon to make those adjustments at this time.

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How is the ruling going to change the industry for both buyers and sellers beyond the commission fee structure?  

• A primary concern for buyers is the ability to come up with the cash needed for the agent’s compensation on top of the challenge of saving for a down payment. This is likely to have the most impact on both lower income and first-time home buyers. Yet, relocating employees who lack new home closing cost benefits will also see their purchasing power diminished.
• Even if sellers continue to cover commission in many cases, this change puts the burden of negotiating that “concession” into the contract squarely on the buyers and their agents.  
• For buyers, using an experienced, highly trained agent becomes even more critical than ever, but many may look to save money by working directly with the listing agent or “going it alone.”  
• Without representation, buyers are at a disadvantage: relocation policies should require the use of a qualified agent to be eligible for benefits.
• Sellers unwilling to negotiate the buyers’ agent commission may find their home takes longer to sell.  
• It has been a “sellers’ market” for a number of years, however, if many buyers drop out of searching for a new home, that sellers’ market could shift.

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How will this ruling impact domestic U.S. corporate relocation programs? Are there international program implications?  

• The expectation is, if buyer agent commissions are not paid by sellers or clients, the financial structure of client contracts will revert to the days of clients paying fees for services, rather than Relocation Management Companies (RMCs) covering their costs from real estate referral fees.  
• For clients with robust programs, covering commission on the buyer side will become common and policies will reflect that, despite the additional cost: buyer agent compensation plus gross-up.  As a condition of covering new home closing costs, including commission, companies should require the use of relocation trained agents referred by NEI.  
• Clients that do not cover new home closing costs or buyer agent compensation may see an impact on recruiting and retention as additional costs to a relocating employee may result in fewer home purchases.
• Internationally, this should only impact those assignees moving to the U.S. with an intent to purchase a single-family home, which is typically a fairly small population.  

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What steps should companies with relocation programs take to ensure no disruption to employee relocation/home sale?

Education is critical:

• NEI has been training its single point of coordination Account Executives for months on the changes, impacts, and what to watch for in buyer agency agreements.  
• NEI provides talking points to its Account Executives, an email with guidance to the relocating employee on what to look out for in those contracts, and an optional Addendum to Buyer Agency Agreement that relocating employees can use with the contract to help limit their risk.  
• This NEI process is on-going and it will continue to be so until the market has absorbed the new processes and stabilizes.

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Are there financial risks to corporate clients or RMCs? Is there an impact on home-sale rebates?

• The financial risk to RMCs is the potential revenue loss from buyer agent referral fees. If companies do not cover that commission, the relocating employee will be responsible. In those cases, RMCs may not be able to collect the referral and will need to charge clients higher exception fees.  
• Also, home sale rebates will likely be reduced or eliminated over time as those calculations assume a certain percentage of referral collection from agents on BOTH the selling and buying sides of each relocation.

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Are there any NAR implications that the general public are not aware of/thinking about?

• Yes; the ruling not only impacts buyers and sellers, but can impact relocating renters as well.  Many NEI clients already cover rental agent commission in markets where it is typical (e.g., New York, New Jersey, Boston, San Francisco, etc.) and this will not change. However, there may be more markets where this becomes common in the future. Renters may ultimately find themselves asked to sign agency agreements, if they are looking for single-family units.  

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What is the industry mood towards the NAR ruling?

• The industry is highly engaged with all the parties and decision makers, and is working behind the scenes to be prepared for a variety of “most likely” outcomes.  
• It will require change, but that’s not new to relocation or real estate: both are resilient and will find ways to best serve clients and relocating families.
• The Worldwide Employee Relocation Council has formed five subcommittees of nearly 60 industry volunteers who are monitoring the ruling and the impact on the industry.

Subcommittees consist of:

• Brokers
• Corporations
• Mortgage & Lending
• Real Estate Related Services
• Relocation Management Companies: NEI’s Connie Pearson, Director Domestic Operations, is on the committee for RMCs  

NEI will continue to work in close partnership with service partners to educate clients and relocating employees to avoid surprises and frustration with the new ruling.  If you have any question about this developing situation, please contact your NEI Client Relations Manager at 800.533.7353 at any time.

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Older Posts: March 15, 2024

National Association of Realtors Lawsuit Update

A significant development unfolded within the real estate industry as the National Association of REALTORS® (NAR) disclosed a comprehensive nationwide settlement addressing commission lawsuits initiated by sellers across various states. It is imperative to note that the settlement is not final; its final approval by the court is pending, and the court is unsure when this may happen.

The proposal includes two pivotal rule changes as part of this new settlement. Firstly, NAR has committed to implementing a new regulation prohibiting compensation offers on the MLS.  With the rule change, brokers and agents must directly negotiate compensation terms with their respective clients. Secondly, agents must formalize written buyer agreements with potential buyers before facilitating property tours.

These proposed rule changes would take effect mid-July, marking a significant shift in industry practices.

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Key Practice Changes:

• Consumers retain the right to opt for cooperative compensation, provided it is pursued off-MLS through negotiations and consultations with real estate professionals.
• A new rule barring compensation offers on the MLS will be enforced, effective mid-July 2024.

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Implications:

• Despite the prohibition of communicating compensation offers through the MLS, various avenues for compensating buyer brokers will persist.
• Compensation for buyer brokers will remain diverse and subject to negotiation between brokers and consumers. Compensation may include fixed-fee commissions paid directly by consumers, seller concessions, or a portion of the listing broker’s compensation.
• Negotiating compensation terms between agents and the consumers they represent will remain paramount.
• The industry may see reduced listing commissions and buyers responsible for paying their own representative.
• With these rapid changes to the real estate sales process, it is more important than ever to work with highly trained and qualified relocation agents for both selling and buyer.
• This announcement heralds a significant real estate paradigm shift, necessitating all stakeholders’ adaptation and diligence.

NEI has observed more locations implementing buyer agency agreements in recent months.  We increased counseling to buyers regarding these contracts with the early rulings on the NAR lawsuits and will continue to offer support to help avoid financial surprises at closing.  

Longer term, we anticipate a need for companies to review their policies to determine any benefit changes as the impacts of these industry disruptions become clearer.  

NEI continues to monitor the situation and will offer updates to our clients as they become available. Please get in touch with your NEI representative if you have any questions or want to discuss this further.

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Older Posts: October 31, 2023

National Association of Realtors Found Liable

A jury reached a decision that could potentially change how real estate transactions are conducted in the U.S., creating opportunities for significant changes to commissions paid to real estate agents. In the case, Burnett v. NAR et al, the Kansas City, MO, jury found the National Association of Realtors (NAR), and some of the largest national real-estate broker franchisors conspired to artificially inflate home-sale commissions.

The basis of the conspiracy is the condition that a home seller must agree to pay a commission to the buyer’s agent before the home can be listed on NAR’s nationwide Multiple Listings Service database – a database controlled by local NAR associations. And, since most home sales are through the MLS marketplace, the plaintiffs claim home sellers are forced to pay a cost that should be paid by the buyer.

Under the new model, sellers may no longer be responsible for covering the seller’s and buyer’s agents’ commissions, allowing negotiation of different compensation models, and having buyers assume the responsibility of directly compensating their agents.

The NAR believes this could be a substantial challenge for first-time and low-income buyers who might lack the upfront funds to pay an agent, potentially depriving them of valuable expertise.

According to Worldwide ERC, the resolution of this and other related lawsuits could potentially change today’s real estate business by bringing competition, cutting costs, and providing customers with more options.

With uncertainty on how the ruling plays out, and NAR planning to appeal the decision with confidence, NEI will continue to monitor the situation and will offer updates as they become available. If you have any questions, please contact your NEI Client Relations Manager or NEI Client Development Contact at 800.533.7353.