Impact of National Association of REALTORS® (NAR) Settlement on Buyer Broker Compensation & Mobility Programs
In our December 2023 whitepaper, “Changes to the U.S. Buyer’s Broker Commission and What it Means for Mobility Programs,” we provided an overview of the potential implications related to the two recent landmark class action lawsuits filed against the National Association of REALTORS® (NAR) and a collection of real estate brokerages, and how these lawsuits may alter employer-facilitated relocations and mobility programs.
The two cases are Sitzer/Burnett v. NAR, et al (filed in Missouri) and Moerhl v. NAR, et al (filed in Illinois). Plaintiffs allege that the defendants’ control of the multiple listing service (MLS) creates anticompetitive practices and thus requires home sellers to pay commissions to buyers’ brokers at an inflated rate, in violation of a federal antitrust act. In essence, sellers allege that they should not be held responsible for compensating the buyer’s broker since they work on behalf of the buyer, not the seller.
Since then, NAR offered a sizeable settlement sum of $418 million along with concessions that, if approved by the courts, will further affect the relocation space. The settlement releases NAR as well as its affiliated brokers and agents with an annual closed sale volume of less than $2 billion from liability with a retroactive effective date that is based on state-specific litigation.
Class members and other parties may object to the settlement, in addition to the recent Department of Justice (DOJ) opposition to prior proposed settlements. It may be several months before court approval and implementation of terms, currently forecasted as mid-July 2024.
WHAT’S INCLUDED?
There are several business practices included in the settlement that impact how real estate transactions occur, namely:
Decoupling of commissions.
Previously, the seller negotiated and paid the entire real estate commission to the listing broker who then typically shared it with the cooperating broker who represented the buyer. Going forward, the seller is not obligated to offer any compensation to the buyer’s representative. Offers of compensation by the seller to the buyer’s representative are permitted, and would be noted in a separate section on the formal listing agreement.
Removal from and prohibited disclosure of broker compensation on the MLS.
Historically, the applicable MLS displayed the total commission paid to the listing broker, a portion of which was then shared with a cooperating broker representing the buyer (under a buyer agency arrangement). Going forward, this information will no longer be provided on any MLS that is NAR-affiliated. If applicable, any offer of compensation to the buyer’s representative must be communicated between the broker’s licensees (by telephone, email, text, etc.) and/or on the listing broker’s media (e.g., website, flyers, etc.) as a willingness to pay buyer compensation. It will be prohibited from inclusion on any internet aggregator website, e.g., Zillow.
Mandated usage of the buyer representation agreement.
While in some states this has been the common practice, going forward, buyer brokerage representation agreements will be required in all states for most purchase transactions. The agency agreement must be signed before the buyer physically tours a property with a buyer’s broker representative.
WHAT DOES THIS MEAN FOR YOU AND YOUR RELOCATING EMPLOYEES?
Here is how the above practices may impact your mobility program.
Decoupling of commissions.
As it relates to the sale of the origin home (i.e., departure) the seller (or the employer on their behalf) still covers the cost of the real estate commission payable to the listing broker. The question is what percentage of the sale price of the home to offer and whether any portion of that should be offered as compensation to the buyer’s representative.
The previous commission structure was based on a typical commission of 5% to 7% of the sale price of the home. Any cost savings realized via a reduction to the percentage must be weighed against other considerations, namely:
• A reduction in the potential buyer pool
• An increase in the time needed to sell the home
• A lower offer price
• Additional costs for extended benefits such as temporary housing, household goods storage, and/or another home-finding trip not otherwise covered by the relocation policy
Willingness to compensate the buyer’s broker provides access to a broader buyer pool, and to achieve a sale more quickly and at a higher price. Unwillingness to compensate the buyer’s broker can result in protracted marketing time, leading to the home becoming “shop worn” thereby increasing carrying costs and decreasing employee productivity.
As it relates to the purchase of a destination home, your employee will be responsible for buyer representative compensation which is not currently covered by most relocation programs as a matter of practice unless by exception. As a result, this:
Increases the employee’s out-of-pocket costs
Makes it harder for first-time homebuyers to afford a home
May impact their preferred selection of homes
May not be financeable via current lending guidelines except via a seller concession which must be approved by the lender
Removal from and prohibited disclosure of broker compensation on the MLS.
Your employee may only wish to view properties where buyer representative compensation is covered by the seller so as not to be held financially liable. Since this information will no longer be visible on the MLS, adequate and accurate due diligence before viewing a property is essential.
Mandated usage of the buyer representation agreement.
While common practice by law in some areas, going forward, utilization will now be required in all states for most purchase transactions.
When the relocating employee is the seller, should they agree to do so, they or their employer on their behalf can still offer to cover some form of compensation for the buyer’s representative. That compensation offsets and/or covers the financial liability of the buyer.
When the relocating employee is the buyer, the adoption of the agreement provides transparency regarding financial liability of compensating the buyer’s representative either by the relocating employee or their employer on their behalf. The seller may agree to cover some, all, or none of the compensation due to the buyer’s representative. If the buyer negotiates a concession as part of an offer to purchase which is agreed upon by the seller, the buyer can use those funds toward compensation of their buyer representative. The lender ultimately determines if this is permissible.
In no event can the buyer’s representative collect more than what is stated in the buyer representation agreement. Any seller contribution will offset the buyer’s financial obligation.
