Mar 2024
National Association of Realtors Settles Collusion Lawsuits

National Association of Realtors Settles Collusion Lawsuits

By Marc Shaw

In a landmark settlement, the National Association of Realtors (NAR) agreed to pay $418 million over the next four years to settle numerous lawsuits related to rules regarding the way real estate agents receive commissions. Critics of these rules claimed they created a conflict of interest which incentivized real estate agents to “steer” their clients to more expensive listings in hopes of getting higher commissions. This settlement has left consumers, real estate agents, and the industry at large wondering how it will affect future real estate sales.

As a leader in the title insurance industry, World Wide Land Transfer works with real estate agents and consumers every day, serving as an ally to represent the best interests of both groups. Read on for our analysis of the NAR settlement and what it could mean for your next real estate transaction.

Origins of the NAR Settlement

Prior to the March 2024 settlement, sellers were essentially required to pay a brokerage fee of 5-6% of the property’s sale price for listing their property on a multiple listing service, or MLS. When the sale was completed, the seller’s listing agent would receive half of this fee, while the other half would go to the buyer’s agent. While this was considered standard practice in the real estate industry, it raised some red flags and led to accusations of buyer’s agents artificially inflating their commissions by steering their clients towards more expensive properties.

“It’s a bribe,” said attorney Doug Miller, who has long advocated for consumers in the real estate industry, “You’re paying someone to negotiate against you. There’s no good reason for sellers to pay buyer-brokers.”

In October 2023, a federal court found the NAR and some brokerages liable for colluding to artificially inflate commission fees. They were ordered to pay $1.78 billion in damages, and the latest NAR settlement will force them to pay more damages and change rules about the way they collect commissions.

Impact of the NAR Settlement

Once the settlement is approved, brokerage commissions will no longer be allowed to be collected for MLS sites. Additionally, both buyers and sellers will be able to negotiate the fees collected by brokers more easily, or even eliminate brokers entirely if they choose to do so. Although there is some disagreement about whether these rule changes will be a net positive, consumer advocates and even some in the real estate industry believe it will benefit consumers by creating more transparency about the costs they will ultimately incur over the course of a real estate deal.

“Price transparency is a good thing; increased competition is a good thing, and this will increase both.” said Maria Letdin, Associate Professor at Florida State University’s College of Business. She went on to add that she believes the NAR settlement will allow sellers to keep a bit more of their home’s sale price.

The NAR, for its part, contends that the public has been grossly misinformed about the way the brokerage and commissions processes work. In a statement, they highlighted the fact that commissions were always negotiable, even if most buyers and sellers chose not to take advantage of it. They continued by saying that housing prices are dictated by factors beyond the control of brokers and real estate agents. They continue to deny any wrongdoing. The NAR’s interim CEO Nykia Wright said that, although the NAR did not necessarily agree with every aspect of the settlement, it was reached as a way of protecting NAR members and their businesses.

“While there could be no perfect outcome, this agreement is the best outcome we could achieve under the circumstances. It provides a path forward for our industry… For over a century, NAR has protected and advanced the right to real property ownership in this country, and we remain focused on delivering on that core mission,” said Wright in a statement.

While the NAR and its multiple plaintiffs have agreed to the terms of the settlement, it must still be approved by a judge, and any rule changes will not go into effect until July 2024. It is difficult to predict how these rule changes will impact the real estate market and real estate agents in the future. At World Wide Land Transfer, we will be keeping abreast of any developments related to the NAR settlement so we can have the best information at our disposal when working with buyers, sellers, lenders, and others in the industry.

If you have a real estate transaction coming up in the future, World Wide Land Transfer can assist you in finding a title insurance policy that fits your needs and your budget. We can also help real estate agents and others in the industry with escrow services to ensure future transactions go as smoothly as possible.

World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.

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