How Does The NAR Settlement Reshape the U.S. Housing Market


August 17, 2024, saw major changes in the real estate policies and practices with the NAR settlement. How will these major regulatory changes govern the agent commission structure? Do these new rules redefine how sellers and buyers approach real estate transactions? Is the real estate market witnessing a major shift? This blog will help you understand the latest real estate regulatory updates, their impact on the market, and more!

About the Recent NAR Settlement

The National Association of Realtors (NAR) oversees hundreds of Multiple Listings Services (MLS) used by real estate brokers in the U.S. as a source of information exchange.

In October 2023, a federal civil jury accused NAR of deliberately inflating realtor commissions. Later in March, NAR agreed to settle the class action. As part of the settlement, NAR formalized major rule changes that could alter home buying and selling in the U.S.

Don’t Let Rapid Market Changes Throw You Off Track! Keep Up Your Real Estate Game with The Right Technologies.

What was the Former Practice?

In traditional practice, when a home was sold, the seller paid a 5% to 6% commission, which was split between the sell-agent and the buy-agent. This practice used to inflate home prices outrageously, as the commissions often got baked into a home’s sale price. So, for a $400K home, a seller would be responsible for paying $24,000 in fees.

Though NAR argued in the class action that these commissions were openly negotiable, it was not so in practice. Also, NAR never used to demand written agreements between buy-side agents and buyers.

What is Going to Change?

NAR’s recent settlement formalized two practice changes on August 17, 2024.

  • A seller’s agent is not allowed to advertise an offer of commission to a buyer’s agent in any of the NAR-affiliated MLS listings.
  • A buyer and their representing agent must sign a written agreement before the agent shows the buyer a house. The agreement should specify the agent’s compensation.

Changes for Home Buyers

  • A buyer must enter a Buyer Representation Agreement with their agent even before the agent shows them a home. Legal representation is mandatory even before you negotiate with your agent.
  • Buyers can opt for either an exclusive or non-exclusive buyer agency agreement. An exclusive contract permits the buyer to work only with one agent. A non-exclusive contract authorizes the buyer to work with multiple buy-side agents.
  • The buyer agency agreement should detail how the buy-side agent will be paid. Buyers can discuss with their agents beforehand whether the commission is paid from the Seller’s Offer of Compensation (SOC).
  • The new rule improves transparency for home buyers. Signing the Buyer Representation Agreement will legalize the process of agent hiring, and buyers will know how much they’re paying for an agent’s services.

Changes for Home Sellers

  • The new rule prohibits sell-agents from publishing buy-side commissions on the MLS. Until an offer is discussed and negotiated, the buyer and their agent will not know whether a seller will compensate the buyer’s agent.
  • Though the Seller’s Offer of Compensation is not posted on the MLS, sell-agents can still discuss the buy-side commissions with sellers off MLS, through emails, texts, or even their brokerage’s website.
  • As mentioned above, new listing agreements will no longer allow sellers to pay the Buyer’s Agent Commission (BAC) directly. However, a seller can offer a SOC, which the buyer can use to compensate their agent, close costs, or negotiate price.

Impact on Realtors and Their Commissions

The new rules would change the way real estate commissions work.

  • Home sellers can decide whether to pay the buy-side broker commission and how much they want to compensate the buy-side agent.
  • Sellers can no longer publicize buy-side agent commissions on multiple listing services.
  • The buyer agreement should clarify what services the agent will provide and what the buyer will pay for those services.
  • Before entering into a real estate contract, all parties will know what their respective agent will be paid and who will be responsible for that payment.
  • The new law prevents buy-side agents from receiving unfairly high commissions. An agent cannot simply steer a buyer to a particular listing because it has a ‘higher’ offer of compensation. This will enhance transparency and promote fair competition in the industry.

How does the Change Affect Home Affordability?

The new rule indirectly expects that more buyers will come up with cash to pay their own agents. Experts believe that the changes would help consumers in the long run.

Experts say mortgage rates will significantly impact property costs more than a rule change. The rate for an average 30-year fixed mortgage has recently hit 6.50%. So, the right equation that may make up home affordability will be mortgage rates (70%) plus the rule changes (30%).

Things to Keep in Mind When Buying or Selling a Home

  • Home buyers: Buyer-agent agreements may vary from state to state and brokerage to brokerage. So, sign any legal contract only after thoroughly reading it.
  • Real estate agents: Draft your buyers’ agreements with simplicity in mind. It can stave off potential confusion.
  • Home sellers: Sellers can opt out of paying any buyer agent compensation. However, they cannot avoid economics entirely. For example, a buyer can negotiate with you to help cover closing costs.

Conquer the Rough Terrains of The Real Estate Market Like a Pro

How can PropTech Help Navigate the Changes?

The historic NAR settlement and the subsequent rule changes are expected to transform the U.S. real estate market like never before. The regulatory changes present unique opportunities for property technology providers.

  • Innovation: PropTech developers like Fingent can help build innovative solutions that organize and simplify real estate transactions, cut costs, and improve transparency.
  • Compliance: Adapting to the new regulatory requirements may require real estate companies to implement highly compliant and contemporary PropTech solutions.
  • Pricing optimization: By using AI to analyze large datasets, we can help you predict upcoming market trends and assess your investment risks. AI can also help define the price of a property by tracking evolving market circumstances.
  • More customized services: Real estate agents can use AR and VR to offer highly personalized services to potential buyers. Virtual home tours, interior design simulations, interactive 3D models of homes, etc., allow agents to offer a real concierge service.
  • Less paperwork: Blockchain-based transaction ledgers and smart contracts reduce the need for traditional, paper-heavy processes and make your legal documents more secure.
  • Effective property listing: Real-time visibility into property listing performance. Appropriate data visualizations allow brokers and investors to make informed decisions.

Complying with the policy and practice changes is mandatory for MLSs owned or governed by the NAR. Customized PropTech solutions help you stay compliant with the evolving real estate regulations. Take the next step by partnering with a reliable PropTech development company. Contact us to learn more.



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