Breaking Down The Proposed NAR Settlement

The recent proposed settlement in the National Association of REALTORS® (NAR) lawsuit has sparked considerable interest and discussion within the broker community, both locally and nationally. The settlement comes after years of legal disputes over NAR’s policies regarding how commissions are paid and how they are advertised from the listing agents to the buyers agents on the multiple listing. The settlement took everyone by surprise, and it represents a significant shift in the landscape of our industry. Overall, I view these changes as positive steps towards greater transparency, as well as emphasizing the value of a dedicated buyer’s agent, but I also have some concerns about unintended consequences. So let’s dive into it!

KEYS ASPECTS OF THE SETTLEMENT

Decoupling of commissions. Traditionally, NAR required an offer of ‘cooperative compensation’ from listing agents to buyer’s agents for properties for sale on the multiple listing services. This meant that listing agents were required to share what the Buyer’s Agent Commission (BAC) would be for the buyer’s agent bringing the buyers that resulted in a successful transaction. Traditionally, sellers were the ones who paid the commission of the buyer’s agent.

You could make a strong and perfectly-logical argument that since the buyers are the ones bringing all of the money to the table, the buyers are actually the ones paying the commissions. But that’s for another day.

Removal of BAC from the multiple listing services. While sellers are still allowed to share commissions with buyer’s agents (and there are good reasons to do so, as I explain below), advertising what the BAC is on the multiple listing service will no longer be allowed.

I believe this is a move away from greater transparency, and is counter to recent requirements in Washington and Oregon to publish BAC on public-facing sites like Redfin and Zillow to give consumers better information about the marketplace and the cost of homes.

In practice, this will simply require more direct communications between the agents to learn what the BAC is, if any, before showing homes for their buyer clients.

Buyer Representation Agreements. The settlement now requires these to be executed between buyers and their agents prior to showing any homes. This was actually already the law in Washington, and Oregon just passed legislation earlier this year to require this starting Jan. 1, 2025. A buyer’s representation agreement is simply a service contract between buyers and their agent that describes the scope of service and specifies the compensation that will be paid to the buyer’s agent for their services. These are nothing new and many buyer’s agents have been using these forever.

I think this is a great outcome for transparency for buyers, as this creates an opportunity for an open and honest conversation between buyer’s agents and their clients. This will require agents to explain the value of their expertise, experience and time put forth to help their clients navigate the biggest financial transaction of their lives. The alternative is for the buyers to represent themselves or have the seller’s agent do that for them. Neither of these options instill confidence, and the entire concept of dual agency (whereby the seller’s agent also represents the buyers) should be prohibited.

As a licensed attorney, it’s always been baffling to me that dual agency is allowed. Lawyers are trained to zealously advocate for their clients’ interests and there is simply no way to do that for two opposing parties. The real estate industry should hold itself to a similar standard.

BIGGEST MISLEADING HEADLINES

That commissions were fixed at 6%. Commissions have been and always will be a negotiable term between agents and their clients. Agents have always assiduously avoided speaking about commissions with one another, even in sales meetings in brokerage offices, to avoid the possibility and appearance that these were somehow fixed. It strains belief to think that more than 1.5 million REALTORS® representing thousands of diverse markets across the country somehow all agreed to the same commission. I’ve been party to dozens of transactions where the commission was different than 6%, and nearly every other broker would be able to say the same thing.

The settlement will lower the cost of housing. Commissions have always been baked-in to the cost of a home. While these new practices will certainly shake-up the traditional method of sellers paying the commissions, the cost of paying agents for their services will remain part of the cost of housing. These costs may be shifted entirely to the buyers, or the sellers will offer some sort of concession towards the buyer’s agent commission, but commissions aren’t going away. Therefore, it’s hard to say that this settlement will have any meaningful impact on the cost of housing.

Much larger macro-economic and systemic issues directly impact the cost of housing: persistently low inventory, increasing population and demographic pressures, several years of very low interest rates during the pandemic that boosted overall demand for limited inventory, therefore causing prices to skyrocket. Now, in a self-reinforcing manner, and in light of interest rates more than double what they were just a few years ago, those homeowners who purchased or refinanced with low interest rates are disincentivized from making a move, resulting in continued depressed inventory levels. Simply put, supply and demand drives the costs of goods, and this is the same for housing.

IMPACTS FOR SELLERS

Sellers will no longer be required to pay buyer’s agent commissions. On its face, that would make it seem like it will be cheaper to sell a home and that sellers are poised to make more money on the sale of their home. This is an important conversation for sellers to have with their agents, as not offering a BAC can have unintended consequences by limiting the pool of potential buyers for their home, possibly resulting in lower sales prices. The reason why cooperative compensation has been used for decades in the industry is because it removes a big friction point for the buyers and allows sellers to maximize the resale value of the home.

Buyers are already strapped for cash, and if they need to pay out-of-pocket for their agent’s commission, they’ll have less to spend on the home and may not even be able to make an offer on the home in the first place.

I foresee the traditional BAC practices to continue in the vast majority of situations, but of course there will be plenty of alternative method of compensation being explored in the coming years, and it will be interesting to see if any of these alternative methods are indeed more beneficial to sellers.

IMPACTS FOR BUYERS

Buyers will need to sign Buyer’s Representation Agreements with their agents prior to looking at homes. Buyers and their agents will need to have an open and honest discussion at the beginning of their engagement about how the agent’s commission will be paid. Again, these commissions are negotiable, but at the end of the day, the buyer’s agent needs to be paid for their services. This is the largest transaction of people’s lives, and hiring an expert to help them understand the underlying value of the property, understand the condition of the property, negotiate vigorously throughout the transaction, navigate the many steps in the process, understand important contingencies in the sales agreement, help them avoid liabilities and pitfalls, and bring them across the finish line efficiently and effectively, is a huge amount of work – and very valuable work.

Buyers might need to pay out-of-pocket for some or all of their agent’s commission. More on this below, but clearly this could affect the ability for many homebuyers to even participate in the marketplace.

POTENTIAL UNINTENDED CONSEQUENCES

First-time homebuyers will feel the pinch the most. Buying a house is an expensive proposition, and housing affordability is a real concern. In fact, it’s now cheaper to rent than to buy in all 50 major metropolitan areas in the country. Student loan debt is crippling and it’s difficult to come up with the downpayment, and many first-time buyers have to lean into their families for help.

*This lawsuit was brought by sellers and the outcomes lean in favor of sellers.* But without buyers – and the money they bring to the table – there is no successful transaction. It’s important to consider the unintended consequences for buyers.

Buyers now face the real possibility that they’ll have to pay out-of-pocket to their agent because the sellers won’t be paying BAC. As this New York Times article succinctly states: “[s]uch buyers may be pushed out of the market altogether or persuaded to forgo representation as they negotiate what is likely the largest purchase of a lifetime.”

I still believe that the traditional way of sellers paying BAC will continue as the standard, but buyers will need to be prepared for alternative ways of paying for their agent’s commission. Buyer’s agents can try to negotiate their commission into the offer and have the sellers provide some sort of concession as part of the sales agreement. Unlike all of the typical closing costs and prepaid expenses involved in buying a home, lenders like Fannie Mae and Freddie Mac don’t allow buyer agent commissions to be wrapped into the final loan amount.

Veterans will be negatively-impacted. Beneficial VA loans that veterans can take advantage of explicitly do not allow for these buyers to contribute to their agent’s commission. This will put them at a major disadvantage when negotiating to purchase a home, especially if the seller refuses to contribute to the buyer agent’s commission

BIPOC and immigrant homebuyers will be disproportionately affected. This group is disproportionately comprised of first-generation home buyers with limited family wealth to lean into, and they often depend on homebuyer assistance programs and sellers willing to cover closing costs (not to mention buyer commissions).

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Regardless of the outcomes and adaptations to come, one thing remains certain: nothing has changed in my guiding principle to deliver exceptional service with trust, integrity and joy. I bring a unique level of experience to my work and I offer expert advocacy in buying and selling homes wherever you are in the process. I’m always 100% laser-focused on my client’s success, and I welcome the opportunity to learn more about how I can help you, or someone you know, make great things happen. Let’s connect!

Andy Meeks

Principal Broker | OR

He/Him

My clients are always my top priority, and my singular focus is their success. This is the intention I set every day. My training and background as a licensed attorney helps me lead with a sharp attention to detail, a keen ear and focused voice, and an unwavering commitment to integrity, transparency and discretion. I’m a passionate advocate and I thrive when helping others succeed, and I’m always available to connect over a cup of coffee to learn how I can help make good things happen. Read my client reviews here. The choice to become a real estate broker was a joyful combination of two very different careers. Prior to moving to Portland in 2008, I was an environmental and title closing attorney in Massachustts. Since then, I've served as a program manager and fundraising professional for Portland-based non-profit organizations Friends of Trees, The Freshwater Trust and Ecotrust. While not scouting homes and helping clients, you can find me riding bicycles, skiing, digging in the garden, experimenting in the kitchen, and exploring the stunning beauty of the Pacific Northwest. Please let me know how I can help you or someone you know. Thank you! *I'm licensed as an attorney in Massachusetts and can't offer any sort of legal advice.

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