Update on National Association of Realtors® Settlement

As you may have heard, on March 15, 2024, the National Association of Realtors® (NAR) announced a settlement agreement to resolve litigation brought on behalf of home sellers related to broker commissions.

I felt compelled to address the issue in this post, because there is a lot of misinformation out there in the media. Frankly, some of what I’ve read is pretty insulting to those of us that are consummate professionals, love our careers, and take extremely seriously the job of guiding buyers and sellers in transactions that typically involve their largest asset. I’ve seen first-hand in the years since the onset of the pandemic how the strong Sellers’ Market has made guidance from experienced real estate professionals absolutely crucial — whether in sorting through numerous offers with Sellers to determine which is the strongest and most likely to get to the closing table…or in strategically crafting offers for Buyers that have a strong chance of getting ratified while still protecting them by not waiving all contingencies.

It is not a career for the faint hearted or for those that want to clock in from 9 to 5. It requires knowledge, grit, perseverance, an extremely strong work ethic, experience, sound judgement, constant training, and putting the clients’ interest before everything else. And believe it or not, according the NAR, Realtors® with 16 or more years experience had a median gross income of $80,700 (and only $9,600 for Realtors with 2 years or less experience) — hardly the ultra lucrative profession it’s often made out to be. And Realtors® are not what you typically see portrayed on TV, which leaves out so much of the due diligence and behind the scenes work involved in the profession.

Those of you who know me well know how passionate I am about the real estate profession. As my Broker likes to say, “It’s the best job in the world,” and he is right. It is so rewarding to help people with such an important financial transaction…and so rewarding to help take much of the stress of such a large transaction off their plate. You end up becoming an blend of financial advisor, project manager, hand holder, problem solver, and valued friend. Yes, I’ve been fortunate to work with so many amazing clients who, if they weren’t already, became dear friends. And I can say I’ve been equally as lucky to work with other Realtors® that are consummate professionals, both in my market center and on the other side of many transactions. So it does sting a bit to have our profession questioned and even vilified at times.

The real estate profession, the lawsuits, and the settlement are nuanced and complicated…and I could probably talk for hours about it all. However, what I most want to do is to explain how Realtor® compensation is structured and then digest the important aspects of the settlement.

When a real estate Broker is hired to help a home seller list their home for sale, the Broker charges the seller a listing fee. This listing fee can include the work the agent (working for the Broker) does to prepare, price, present, and promote the home. It can also include managing showings, evaluating and presenting offers to the seller, negotiating on behalf of the seller, and managing the full “contract to close” time period and navigating contingencies. What a listing agent does — and what he or she charges for those services — is discussed at the the listing appointment when reviewing the listing agreement.

In the current Northern Virginia Association of Realtors (NVAR) listing agreement, there are several paragraphs detailing compensation. The seller agrees to a total fee and is also given the opportunity to offer a portion of this compensation to the “Cooperating Brokerage” who represents a buyer. This fee is paid to the Cooperating Brokerage/Buyer’s Agent as compensation for bringing a ready, willing, and able buyer — and handling the literally hundreds of details involved in representing them and ushering them through the home purchase process to get them to the closing table. As stated in the NVAR listing agreement: Broker’s compensation and the sharing of compensation between brokers are fully negotiable and are not fixed, controlled, recommended, or suggested by law or any multiple listing service or association of REALTORS®.

The various lawsuits brought against NAR maintained that some sellers didn’t feel they had a choice regarding the amount of commissions offered to Cooperating Brokerages/Buyers’ Agents…and even whether to pay them at all.

To be clear, commissions have never been fixed, and in our area, I have seen Buyer Agents’ commissions of all levels. The multiple listing services (MLS) have taken pride in making “cooperation and compensation” transparent — to make listings available and accessible to as many buyers as possible, with their agent representatives knowing exactly what the seller and listing agent were offering to Cooperating Brokers. In Virginia we use Listing Agreements (for sellers) and Buyer Agency Agreements (for buyers) to clarify how we get paid and how much we charge for our services. Some agents offer more services than others, and that may be reflected in the compensation. As I mentioned above, this is discussed at the time those agreements are signed. So in many ways, the media’s portrayal of “big changes in the industry” isn’t entirely accurate.

Now, however, as part of the NAR Settlement, any commissions offered to Cooperating Brokers and their agents representing buyers will not be published in the MLS and need to be communicated in other ways between sellers and buyers and their agents, based on the compensation agreement each party has with their respective Broker. The details may become part of the sales contract, an addendum, or some other form. Obviously, there are still a lot of details to work through, and as an industry, we are trying to find the best way forward.

But like anyone, Realtors® don’t work for free. If sellers choose not to offer compensation to the Cooperating Broker (but only want to pay the Listing Agent’s commission), buyers agents will need to get paid for the work we do in another way…and it will inevitably be buyers who are then asked to pay the buyer agent’s commission. This is not necessarily a good outcome — and makes most of us Realtors® shake our head — because this new policy penalizes the very people (buyers) who are already bringing large sums to the closing table for a down payment, prepaids, title insurance, and closing costs. When you add compensation for their agent, the cost of buying a home may be prohibitive for first time buyers and those without deep pockets. It could be one more way some buyers end up getting sidelined in this very competitive market, because they won’t be able to offer as much for the home.

Even worse, some buyers may choose to “go it alone.” But choosing to forego Realtor® representation to save money is penny wise and pound foolish, as most real estate related lawsuits involve unrepresented buyers or sellers. Selling and buying real estate is a complex process full of timelines, deadlines, disclosures, rules, and regulations guiding contingencies, how and when a buyer may (or may not) legally void a contract, and more. My fear is that buyers, if faced with paying their Realtor’s® commission out of their own pocket, may try to navigate this process on their own to save money…to their detriment.

The objective of most Sellers will continue to be to get the largest number of ready, willing, and able buyers in to see their home and submit offers. As such, we believe that the majority of sellers will see the value in compensating Cooperating Brokers/Buyers’ Agents in order to attract all interested buyers. It will just need to be executed differently, as per the settlement.

To be clear, NAR’s settlement was not an admission of guilt, but rather a way to “move forward” without Realtors®, Realtor® associations, Brokers, and MLS services being threatened with copycat lawsuits and being held personally liable. The court still needs to approve the settlement, and any changes are expected to start taking place in July. I encourage you to visit NAR’s website for more information.

I also welcome your questions and am happy to discuss the way we will move forward as an industry as we brainstorm the best way to serve our clients and strive for the best outcome for both buyers and sellers.

As Gary Keller, the founder of Keller Williams, likes to say, “Onward….”

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