Understanding the NAR Settlement and Its Impact on Real Estate

If you’ve been keeping an eye on the news lately, you may have come across discussions about a class-action suit aiming to shake up the traditional 6% commission structure for real estate agents. Let’s dive into what this settlement means for the real estate industry.

What the Lawsuit Was About:

In the world of real estate, it's unique that you pay someone to negotiate against you. Picture this: you want to sell your property, so you hire a real estate agent to handle the sale. But here’s the twist - that agent then pays another agent to negotiate against your interests. This setup was deemed unfair, leaving the seller to foot the bill for the buyer’s representation if they felt they needed it. This is a little like being accused of a crime and paying a prosecutor to prosecute you.

Real estate agents are necessary but not required

No one is required to hire an agent in a real estate transaction. Both seller and buyer may choose to represent themselves. Sellers may choose to hire someone to sell their property and pay for their services out of the proceeds of the sale and there are many reasons why this is advantageous to the seller with the most obvious being the financial gain. Statistically, homes that sell with an agent sell higher and faster hence making hiring an agent very attractive. Buyers are not required to have representation either.  Having an agent is advantageous as it will grand the buyer better terms and pricing but if they did want someone to negotiate on their behalf, these services are not free. If the selling party chooses not to pay a co-op, then the buyer should be prepared for it, and not rely on the selling party.

Why NAR Got Involved:

The National Association of Realtors (NAR) found itself in the legal crosshairs because of its involvement in setting commission details on the Multiple Listing Service (MLS). Essentially, NAR made it mandatory for listing brokers to include a commission if they wanted their properties to be part of the MLS advertising. This practice was seen as price-fixing and a violation of the Sherman Antitrust Act.

Setting the Record Straight:

First off, it’s essential to know that commissions in real estate have always been negotiable. Secondly, the commission is paid to the listing broker, who then decides whether to share it with the agent representing the listing or offer a portion to a broker who brings in the buyer - this is known as a co-op.

What the Texas Contracts Say:

In Texas, the buyer representation agreement states that the buyer agent fee will be covered by the selling party, typically the listing broker. However, if the listing broker doesn’t offer a co-op commission, then it becomes the responsibility of the buyer to cover the agent's fee. These terms are already spelled out in Texas Buyer Representation Agreements.

Moving Forward:

For buyer’s agents, not much should change because these terms are already established. However, it’s crucial to carefully screen buyers and ensure they understand that the services provided are not free. They are covered by the listing broker who has agreed to pay the commission. In cases where this doesn’t happen, buyers should be aware that they may need to cover the commission themselves.

In conclusion, while the NAR settlement may bring some changes to the real estate landscape, understanding the existing agreements and communication with clients will remain key elements in navigating this evolving terrain.