On the morning of Friday, March 15th, the National Association of Realtors (NAR) announced its agreement to settle a recent class-action lawsuit related to real estate transactions, agreeing to pay $418 million. If approved, this settlement signifies a reshaping of the US real estate market by altering the current practices of commission collection.
Background
For years, the NAR has faced numerous lawsuits alleging anti-competitive behavior. The most recent setback occurred on October 31st last year when a federal jury in Missouri determined that NAR's long-standing requirement for home listing agents to disclose buyer's agent commission rates on Multiple Listing Service (MLS) listings and contracts, typically around 2.5% - 3%, raised the cost of selling homes, resulting in inflated prices, thus violating federal antitrust laws, resulting in a massive $1.78 billion judgment against the NAR.
Settlement Details
Prohibiting offers of compensation on the MLS. Consumers can negotiate and bargain independently through consultation with real estate professionals.
Seller's agents no longer determine the commission of buyers' agents.
Written agreements for MLS participants acting for buyers
If approved by the federal court, these changes will take effect in mid-July 2024.
Impact on Buyers and Sellers
In this settlement declaration by NAR, the biggest beneficiaries are expected to be homeowners (sellers). If the court approves the agreement, sellers will no longer be required to pay commissions to buyer agents, significantly reducing the cost of selling a home. The settlement most impacted are the buyer's agents and buyers, especially first-time homebuyers; they may have to pay commissions out of pocket. This could impact their downpayment budget and result in fewer people using agents to buy homes, thus significantly reducing commissions.
In-depth Analysis
The settlement proposed by the NAR appears to bring significant changes to the real estate industry, potentially reducing the costs associated with buying and selling homes. However, we need to consider whether consumers' rights are truly protected. Will reducing commissions lower home prices? Real estate transactions involve a wealth of knowledge, including understanding the property itself, local areas, market trends, contract drafting, and negotiation skills, all of which require significant time and experience to accumulate. It is not cost-effective to learn all these skills for a person who only transacts a few deals. If homebuyers choose not to use agents to save costs or due to limited budgets, it's akin to choosing not to buy insurance, as it entails greater risks. What about going directly to the seller's agent to buy a home? In reality, this approach is impractical. From a human nature, sellers want to sell at a high price, while buyers want to buy cheaply. These two desires are fundamentally conflicting. Agents representing both sellers and buyers often lead to disputes. This is why buyer agents are necessary. I believe market dynamics, driven by supply and demand, determine prices. The NAR settlement agreement may lead to some confusion in real estate transactions, but commissions and agreements between buyers and buyer agents will become more concrete and transparent. In essence, this will enhance protection for buyer agents. Regardless of future fee standards, providing professional services while reducing the risk of working for free will be beneficial.
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