Understanding the NAR Settlement and the Potential Impact on Global Mobility

Amidst the bustling spring homebuying season and a backdrop of soaring housing costs, the American real estate landscape stands on the brink of significant change. On March 15, the National Association of Realtors (NAR), representing over a million Realtors, reached a tentative settlement agreement in a class-action lawsuit centered on broker commissions for residential transactions. This legal saga, initiated in April 2019, alleged collusion and price manipulation by NAR and other major broker franchises, culminating in a Missouri jury’s verdict against Keller Williams, HomeServices of America, Inc., and NAR. Two other brokers included in the suit – RE/MAX and Anywhere – reached settlements before the verdict.

Under the terms of the March 15 settlement, NAR has agreed to pay $418 million over four years in damages and to abolish the contentious “Participation Rule,” which mandated sellers to compensate buyer brokers. The agreement introduces two pivotal changes aimed at reshaping industry practices:

1. Prohibition of Compensation Offers on MLS: Sellers, dissatisfied with shouldering buyer commission fees, argued for the ability for buyers to negotiate directly with their agents. Consequently, NAR will enact a new MLS rule barring offers of compensation, thereby detaching seller and buyer commissions.

2. Mandatory Written Agreements: MLS participants working with buyers must now establish written agreements before home tours, aimed at clarifying the services provided and their associated costs.

“While NAR’s adjustment removes buyer side broker commissions from MLS listings, sellers retain the option to offer coverage to buyer agents through contractual concessions, albeit outside MLS marketing. These alterations, slated for implementation by late July 2024, anticipate a significant transformation in the real estate transaction landscape.

Anticipating the ripple effects, industry stakeholders, including Plus Relocation, are evaluating potential impacts on mobility programs. The settlement’s ramifications may herald reductions in buyer agent commissions and a decline in the number of real estate agents. Furthermore, adjustments in home sale and purchase benefits, as well as shifts in revenue streams for relocation management companies, are anticipated.

How might this impact your mobility program? Some considerations include:

• Expect a shift toward more transparent discussions with relocating employees about their home sales and purchases during relocations, specifically around the changes in broker commissions. It’s likely that commissions on the home sale side will undergo some adjustments, possibly leading to reduced commissions for buyer’s agents. This means potential savings for both buyers and sellers, but it also underscores the importance of understanding and negotiating agreements with realtors on both sides.
• Get ready for a new requirement in many places where home transactions happen during relocations: buyer agency/representation agreements. These agreements, which may become more common, ensure that buyers have representation and outline the responsibilities of both parties. They’ll need to meet potential standards set by the settlement and could also be subject to state-specific regulations influenced by the NAR lawsuit. As this settlement sets a precedent, we may see more states introducing similar requirements, making it essential for both buyers and sellers to understand their rights and obligations in these agreements.
• Today, buyer agent compensation can’t be bundled into mortgage loans. That means buyers will need to budget separately for this expense. While it’s a current policy that’s unlikely to shift in the near future, it’s crucial for buyers to be aware of this financial aspect when planning their home purchase. This ensures transparency and helps avoid any surprises down the road.

• Homebuyers may have an easier time negotiating fees with their agent. This could mean more flexibility in how buyers work with agents, and might even lead to the decision to navigate the home buying process solo, without an agent. This shift has the potential to bring down commission rates overall, offering buyers more control over their expenses. It’s a change that could impact how people approach buying a home, so staying informed about options is key.
• If buyers start footing the bill for their own buyer agents, any reimbursement of these commissions by mobility programs could end up being taxable for the employee. This means that companies might need to consider whether they’ll “gross up” these taxable reimbursed expenses for their employees, essentially covering the additional tax burden. Most programs are expected to handle this expense similarly to other taxable relocation-related costs for now, but it’s worth staying updated on any changes as the situation evolves.
• The cost of employee home sale benefits and home purchase benefits is bound to change and with it, the expenses associated with these benefits are likely to evolve. This means both employees and companies might need to adjust their expectations and strategies when it comes to supporting home-related aspects of relocations.
• Changes in real estate commission structures could affect the revenue earned by relocation management companies (RMCs) through real estate referral fees. As the landscape evolves, it’s likely that RMCs will need to adapt and develop new pricing models to stay competitive.

As the settlement awaits federal approval, with the Department of Justice scrutinizing its details, industry players remain vigilant. Plus will continue monitoring developments and offering insights and guidance as the situation evolves. It is advised to stay updated with resources provided by organizations like the Worldwide ERC for further clarity on evolving practices and policies.