The landscape of the real estate industry was altered significantly with the recent settlement reached by the National Association of Realtors (NAR) with the Department of Justice (DOJ). The proceedings, which resulted from antitrust allegations, offer an array of potential ramifications for real estate consumers and brokers. This settlement has brought about new changes in policies and expectations in the real estate industry, impacting the practices of real estate agents, the behavior of MLS organizations, and the experience of consumers.
To begin with, let us delve into what this settlement entails. The DOJ alleged that NAR’s policies were limiting competition among real estate brokers and potentially denying consumers effective choice and cost efficiency. In November 2020, NAR agreed to make changes to several policies being challenged by the Department of Justice.
Transparency is at the core of these policy changes. Under the new rules, agents are required to submit a comprehensive disclosure about buyer and seller commissions, thereby ensuring that consumers are fully aware of the costs involved. This is a significant shift from the traditional practices, wherein buyer brokerage agreements could remain undisclosed to clients. Now, consumers need not worry about hidden fees or surprise costs as everything is stipulated clearly in print.
Moreover, the settlement has also put an end to the practice of brokers claiming their services are free to the buyer. This misleading practice had led to a misinterpretation that agents’ services were without cost. With the obligation to accurately represent the transaction fees, brokers can no longer allude to the word ‘free’, thus creating a more honest and open relationship between consumers and brokers.
The role of MLS (Multiple Listing Services) organizations in displaying listings on their websites has also undergone changes due to the settlement. No longer can MLS organizations refuse to grant licenses for the display of real-time listings to certain brokers. This will ensure a greater degree of competition, enabling all brokers to vie equitably for consumer attention and providing consumers with a broader range of choices.
Despite the benefits that transparency brings, some industry experts worry that explicitly showing both sides of the commission could lead some sellers to push for lower buyer-side commissions, which could eventually harm buyer agents. On the other hand, proponents believe that this transparency will lead to more competition and thereby, drive down commission rates, benefiting consumers.
The settlement also brings a change in allowing brokers to filter the listings they show consumers based on compensation. This may become a contentious issue as it could be perceived as promoting a form of bias. However, it could also allow consumers to avoid listings where they would directly have to compensate the buyer’s broker.
Lastly, the prohibition of anticompetitive buyer broker compensation rules has come into place. The former practice of setting fixed buyer broker commission rates has been replaced with flexibility, which allows the buyer’s broker to negotiate a different rate directly with the buyer.
The settlement of the NAR with the Department of Justice has undoubtedly caused a significant shift in the operation and practices of the real estate industry. It has led to an era that emphasizes transparency, honest disclosure, competition, and enhanced choice for consumers. While these are broadly welcome changes, their impact on the brokerage market in the long run remains to be seen. As the new regulations take a firmer hold, brokers will need to adjust their practices and consumers can enjoy more autonomy in their choice of real estate services.
