The recent news surrounding the National Association of REALTORS® (NAR) settlement agreement has certainly stirred up a lot of chatter within our real estate circles and among the public. With so much misinformation floating around, it's important set the record straight and shed some light on what this settlement really means for our industry, clients, and colleagues.

First, let's clear up one of the biggest misconceptions making headlines: NAR has never been in the business of dictating, or even suggesting commission rates. Contrary to what many reports suggest, commissions have always been up for negotiation between brokers and their clients. This settlement doesn't change that fundamental aspect of how real estate transactions work.

It's worth noting the irony of the situation when it comes to the attorneys who spearheaded the litigation against NAR. While they accused NAR of price-fixing, their own professional association has specific fee recommendations prominently displayed on their website. This glaring double standard highlights the importance of scrutinizing accusations and ensuring consistency in standards across all industries.

Now, about the settlement itself—it's currently awaiting judicial approval and involves a sizable payout by NAR over four years, as well as several policy changes. NAR's goal in settling was to put an end to the litigation surrounding broker commissions and pave a smoother path forward for the industry. While it does seem that there would have been a strong case for an appeal, the settlement puts an end to the class action suits brought on by opportunistic attorneys, and will allow the industry to focus on what really matters—serving our clients.

One key takeaway from the settlement is the preservation of consumer choice. Cooperative compensation—a system where sellers' brokers offer a slice of their fee to the buyers' broker who brings in an accepted offer—remains intact. However under the proposed changes, these offers of compensation would now have to be communicated off the MLS.

Here in Greater Boston, our local MLS, MLSPIN, isn't under the ownership of NAR. So, it remains to be seen how MLSPIN will respond to the new regulations outlined in the settlement but assuming they adopt the changes, it will add a bit of complexity and unfortunately less transparency for buyers and their agents. As a brokerage we'll remain committed to ensuring clear and consistent communication for all of our clients throughout the process.

The other policy change is that buyers' agents will be required to have a signed buyer agency agreement in place with a client before showing a property. This is one positive resulting from the proposed settlement, as these agreements will ensure that all buyers working with a Realtor will have clarity on what to expect from their agent and how that agent will be compensated.

It's important to note that not all brokerages and agents work as Realtors, and would therefore not be bound by any of the proposed changes. NAR is a professional organization and the new regulations would apply to their own rules for members, which are distinct from state licensing laws. This adds another layer of confusion for the general public, as policies won't be consistent across the industry. Our role as brokers and agents will be to help clients understand their options and which regulations we're required to follow.

With the exception of the requirement of buyer agency agreements, a large part of the proposed changes actually takes us back to old ways of doing business that were in place before current consumer protection policies came into play. Change is nothing new in this industry, and as a local, independent brokerage, we're dedicated to supporting our clients and colleagues through the changes. We'll always be here to provide reliable guidance and assistance as we navigate this evolving landscape together.

There's been a flurry of recent news surrounding the class action suits that are shaking up the real estate landscape. Let's take a minute to dive into the details and clear up some of the confusion surrounding commissions.
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First, we have to dispel the misconception that sellers were ever obligated to provide direct payments to buyers' agents. That's simply not the case. Instead, market dynamics have shown that sellers' agents offering a portion of their own commission to motivate a buyer's agent to bring a buyer has been a highly effective strategy in marketing a home. These buyers' agent incentives have become a prevailing norm rather than a mandated rule. 

Actually, back in the '90s, buyers' agents were known as sub-agents of the seller. Commission was generally distributed in the same way it is now except that buyers technically had no one representing their best interests. Policies changed to designate buyers' agents as having fiduciary duties to their clients while still having the opportunity to receive commissions from those sellers' agents who were offering it. This has been effective at protecting consumers on both sides of the transaction while ensuring that fees are paid in a way that doesn't negatively impact a buyer's ability to secure financing (details on that would be another lengthy blog post!). Still, it's easy to see how this complexity has been a source of confusion.

Now, when it comes to commissions, it's crucial to understand that they are and always have been negotiable. There's a range of options from different types of brokerages offering differing levels of service. While the market may have determined an average amount that many sellers and agents find reasonable, it's important to recognize that consumer choice and alternatives have always existed within the industry.

As for what brokers and agents do to earn their commission, it goes far beyond a mere fee. According to a 2022 NAR report*, homes without an agent tend to sell for approximately 35% less. Even after factoring in a 5-6% commission, sellers often find themselves with a significant 29-30% more in their pockets. Agents and brokers showcase their expertise as strategic advisors, marketing skills, transaction management and negotiation, all rolled into one.

So, why would the former home sellers in recent class action suits feel they overpaid? It may have been in part due to poor explanation of the process on the part of their agents, but more likely opportunistic attorneys (ironically, whose commissions on these suits typically range from 25-33%) who took advantage of a lack of clarity in the marketplace. This underscores the importance of transparency and understanding within the real estate industry to prevent misconceptions from taking root.

Looking ahead, we remain all in, continuously working hard on our clients' behalf. We're genuinely excited about any shifts in the industry that prioritize transparency—something we've always valued. Being a nimble, independent brokerage, we have a distinct advantage. No layers of red tape here, and no getting sidetracked by legal suits. Instead, we can continue to offer our undivided attention to our clients. Our adaptability allows us to swiftly embrace positive changes, ensuring a transparent and top-notch experience for our clients as the real estate landscape evolves. Cheers to a bright future! 🌟🏡

​*2022 NAR Report