The settlement of the NAR Realtors' lawsuit has forever changed the real estate landscape. In anticipation of its impact, the New Home Star leadership team gathered insight into prevalent questions and how it will reshape how builder sales teams sell new homes.
1. What is an executive summary of the NAR Realtors’ lawsuit settlement?
After allegations following unfair pre-set real estate agent commissions, the lawsuit began against the trade group, tying them to indirect home price inflation. As a result, the historic standard 5%-6% commission rate would be abolished, resulting in five significant changes to the following areas once approved by the court:
- Compensation offers moved off the MLS.
- Written agreements for MLS participants acting for buyers.
- Settlement payment that NAR would pay $418 million over approximately four years.
- Release of liability for NAR and members.
- NAR continues to deny any wrongdoing.
2. What are the potential implications of the NAR lawsuit verdict?
The settlement deal could loosen a tightly controlled market and create opportunities for new players and business models. As a result, consumers would have more opportunities for increased negotiation and a greater say in the prices they pay for real estate services and commissions. Additionally, the settlement paves the way for added transparency in real estate transactions, leaving “steering” tactics from buyers’ agents less prevalent.
Here are a few of the most common predictions circulating.
- Realtor commissions on both sides of the transaction will fall.
- House prices may fall over time as lower commissions are accounted for in home values.
- Many agents may leave the industry as commissions fall.
- Lower commissions could incentivize more homeowners to list their properties, potentially affecting the supply and pricing dynamics in the housing market.
While overall commission falling and a wave of agents leaving the industry seems likely, home prices falling does not. Typically, when production costs decrease, prices don't always follow suit –– the seller simply captures more profit, which is likely true in this case for home sales. Ultimately, interest rates are still more likely to determine a homeowner’s desire to sell and a buyer’s ability to purchase.
3. If the buyer’s agency is diminished in any capacity, who protects the buyer's interests now?
The role of seller’s agents could become more important than ever to ensure buyers feel comfortable, informed, and involved in the home buying process. For builders, this means ensuring community managers or new home sales agents are licensed, as the full responsibility to represent the builder and buyer is a reality.
4. So, who pays the buyer’s agent?
As a result of the NAR lawsuit verdict, buyers will no longer get a real estate agent for “free” and might end up paying out of pocket for the service, depleting the cash they need for their down payment and other fees. But were buyers ever getting a free agent? An argument can be made for “no,” it was always accounted for in elevated home prices.
A few outcomes are most likely to happen:
- The buyer may need to pay a flat fee.
- The buyer may need to pay a percentage of the sales price.
- The buyer may need to pay an hourly rate or a flat fee for agreed-upon services rendered.
- The buyer may completely skip having a broker overall.
The real estate industry is emphasizing that a seller could still actually cover the buyer agent's fee, a concession that would be negotiated further in the overall deal terms.
5. When do we expect to see effects from the settlement?
The settlement could go into effect as early as mid-July 2024, but big changes won't happen overnight. It will take a long time for a truly competitive marketplace to emerge. There will almost certainly be some resistance to change coupled with first-mover dynamics.
6. Who, ultimately, are the winners in this decision?
Home sellers and builders will greatly benefit from this decision, as they can attain more proceeds when they sell a house. Additionally, online and discount real estate brokerages are also at an advantage due to the limited services and lower commission rates offered. Through these brokerages, buyers don’t walk away without any assistance but instead have a greater choice and freedom regarding their representation and the associated costs.
7. How will the NAR Realtors’ lawsuit affect commissions?
Most experts believe commissions will fall over time, specifically on the buyer’s side. Seller-side commissions may be more important and valued by sellers and builders than ever to help drive traffic, convert nervous buyers, and effectively be the builder’s field-level presence. But only time will tell how the NAR lawsuit verdict will directly affect commissions.
8. Will home builder co-op rates go up or down?
A case can be made for both sides of this argument. On one hand, co-op rates can be expected to decline with the increasing availability of information online and the ability to tour, design, and select homes virtually. Plus, the new ruling states that MLS participants acting for buyers would be required to enter into written agreements before touring a home, leaving a projected decrease in overall real estate agents in the aftermath of the ruling.
Alternatively, due to the importance and potential lack of experience with home purchases, most buyers would still prefer having an "advisor" to help facilitate the transaction. In fact, according to NAR’s 2023 Buyers and Sellers report, 90% of buyers said they would use their real estate agent again or recommend them. The market share left by the existing agents would simply be absorbed by other top performers or brokerages, leaving co-op rates untouched or even increased. The newfound competition landscape is expected to reduce paid co-op commissions over time.
9. Does this impact MLS databases not operated by NAR?
Other MLS databases are aware of the litigation involving NAR. Despite not having affiliations with NAR or any party involved, their legal teams are closely monitoring the related cases and proposed settlement.
While many other MLS rules have stated explicitly that they are not involved in determining compensation charged by real estate brokerage firms or the commission splits, any necessary adjustments would come with advanced notice to members.
10. What should builders do right now in response to this ruling?
Given this information and the status of the lawsuit, home builders can inform and educate their sales teams to ensure they are prepared to field inevitable questions or conversations buyers and Realtors will ask. Despite all the pending changes, the best agents and brokerages will continue to be the best. Focusing on fostering relationships will provide builders with qualified and informed buyers, so it's recommended to focus on the holistic customer experience all the way from the first website visit to closing day. The builders who place a strong emphasis on making buyers feel informed and cared for will surely thrive in this new environment.
Our team can help new home builders navigate these changes
Our home builder consulting team understands the new home building industry and is eager to share their knowledge. If you need guidance or insights on how the NAR lawsuit verdict will affect you, please reach out to our team today.
