NAR Settlement Leads to Major Changes in Listings and Broker Fees

When the National Association of Realtors (NAR) and several real estate brokerages agreed to a $418 million settlement of a homeowners' suit — and numerous copycat lawsuits — they also agreed to make significant changes to their listings and broker-fee models by a specified deadline.

That deadline is upon us: Saturday, Aug. 17.

The major policy changes under the settlement affect the multiple listing service (MLS) that drives the marketing of property listings. In essence, these changes aim to eliminate and prohibit the ability for brokers and their representatives to require compensation and use it as a mechanism for filtering listings. NAR's REALTOR Magazine lists other major changes under the settlement:

Eliminate and prohibit MLS participants, subscribers and sellers from making any offers of compensation in the MLS to buyer brokers or other buyer representatives.

Require compensation disclosures to sellers, as well as prospective sellers and buyers.

Require MLS participants working with a buyer to enter into a written agreement with the buyer prior to touring a property.

Additionally, listing agreements must disclose to buyers and sellers that broker commissions are not set by law and are fully negotiable.

The original lawsuit was brought by home sellers in Missouri, who successfully argued that the the NAR’s rule that a seller’s agent must make an offer of commission to a buyer’s agent led to inflated fees, and that another rule requiring agents to list homes on databases controlled by NAR affiliates stifled competition.

Independent of the NAR settlement, the Real Estate Board of New York introduced five revisions to its Universal Co-Brokerage Agreement, effective as of Jan. 1, 2024. One of these revisions is the decoupling of broker commissions. The revision requires offers of compensation to the buyer’s agent to originate from the seller, not the listing agent, even if it’s on the seller’s behalf. Before the settlement was hammered out, an earlier court ordered NAR and other defendants to pay $1.8 billion in damages.

So will the settlement have the widely hoped-for effect of lowering broker commissions? In January, the average commission paid to a real estate agent hired by their buyer was 2.62%. As of July, the average had fallen to 2.55% according to a Redfin analysis. It’s a small decrease, but potentially a sign of what’s to come once this new policies go into effect.

According to The New York Times, broker commissions are sure to go down: "Because the settlement eliminates rules that require sellers’ agents to make an offer of commission to buyers’ agents, most sellers’ agents are expected to ask their clients to pay only for one side of the commission pie — a number that averages 2.5 to 3% now, and may be pushed downward by competitive pressure as the settlement changes continue to roll out."

Michael Ketchmark, the lead lawyer in the successful lawsuit against NAR, cautioned that agents who seek to move the commission conversation from the MLS to other venues would be opening themselves to potential legal fights. “Anyone who thinks they can continue to fix commissions on new websites or side deals is foolish and wrong,” he tells the Times. “We will take legal action to enforce the settlement agreement. It’s time to let the free market finally work.”

For additional information on what the settlement means for the buyers and sellers of co-op and condo apartments, visit NAR Settlement: Get the Facts.