In a landmark decision this past March, the National Association of Realtors® (NAR) agreed to settle a class action lawsuit known as the Sitzer-Burnett case. This settlement has far-reaching implications for the real estate industry and is especially important for those looking to buy or sell a home. 

In this blog post, we’ll break down the key points of the NAR settlement, explaining how it impacts both buyers and sellers. We’ll also delve into the potential changes to commission structures, increased transparency, and what it means for the overall real estate landscape. 

Whether you’re a first-time homebuyer or selling your home, understanding the ramifications of the NAR settlement is crucial for navigating the current real estate market. So, let’s dive in and explore how this settlement could affect your next real estate transaction. 

What was the Case About? 

The Sitzer-Burnett lawsuit was a class-action lawsuit brought against the National Association of Realtors (NAR) and several other major real estate brokerages. The crux of the case was that NAR’s policies, specifically those related to buyer broker compensation, were artificially inflating commissions and ultimately harming home sellers. 

The plaintiffs argued that the traditional practice of the seller’s agent offering a commission split to the buyer’s agent was anti-competitive. They suggested that this practice discouraged buyer brokers from negotiating lower commissions for their clients and essentially shifted the burden of paying the buyer’s agent onto the seller. 

The lawsuit also challenged NAR’s rules around transparency in commission offerings. It claimed that the lack of clear information about how commissions were structured limited competition and kept commission rates artificially high. Ultimately, the settlement aimed to address these concerns and promote a more competitive and transparent real estate market. 

What Does the Settlement Mean? 

While the complete details of the NAR settlement are still unfolding, here’s a high-level overview of the key terms and their potential implications for the industry: 

Key Terms of the Settlement: 

  1. Increased Transparency: The settlement mandates greater transparency in commission offerings. Buyer broker compensation must be clearly disclosed upfront, and any offers of compensation on the Multiple Listing Services (MLS) must be in a specific format, including flat fees, percentages, or hourly rates. 
  1. Separate Buyer Broker Agreements: Buyer brokers must now have separate written agreements with their clients outlining the terms of their compensation. This aims to clarify the relationship and expectations between buyers and their agents. 
  1. No More Blanket Unilateral Offers: The practice of listing agents making “blanket unilateral offers of compensation” to buyer brokers on the MLS will be discontinued. This means that each buyer broker’s compensation will be negotiated individually, rather than being determined by a standard offer from the listing agent. 

How This Settlement May Affect Real Estate Agents 

  • Increased Competition: Agents will need to compete more directly on their services and value proposition, rather than relying on standard commission splits. 
  • Greater Transparency: Agents must be more upfront about their fees and negotiate compensation terms directly with their clients. 
  • Focus on Value: Agents will need to differentiate themselves by offering valuable services and expertise to justify their fees. 

How This Settlement Affects Homebuyers 

  • Potential for Lower Commissions: Increased competition among buyer brokers could lead to lower commission rates for buyers. 
  • More Transparency: Buyers will have a clearer understanding of how their agent is compensated and can negotiate fees more effectively. 
  • Greater Payment Structure Choice: Buyers will have more options for how they pay for buyer broker services, whether through a commission, flat fee, or hourly rate. 

The Implications of the Settlement for Sellers 

  • Potential for Lower Costs: The elimination of blanket unilateral offers could lead to lower commission costs for sellers. 
  • More Control: Sellers may have more say in how much they offer to buyer brokers, potentially encouraging more competitive bids. 
  • Increased Transparency: Sellers will have a better understanding of the commission structure and how it impacts their overall costs. 

Overall, the NAR settlement aims to promote a more competitive and transparent real estate market, with the potential to benefit both buyers and sellers through lower costs and greater control over their transactions. However, it also poses challenges for real estate agents, who will need to adapt to a changing landscape and focus on delivering value to their clients. 

If you’re looking to buy or sell a home, it’s still recommended that you utilize an experienced real estate agent in your area. Additionally, you should speak with a loan officer to ensure you have a solid plan for how you’ll finance your new home. 

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