By Emily Goldberg, Editor-in-Chief
For a first time home buyer, the complexities of the housing market can be so overwhelming that they choose to rent instead of buy. Still, for a lot of potential homebuyers looking to settle down in one place, these challenges must be overcome. However, the previous practices of the National Association of Realtors (NAR) often affected the cost of the housing market, making buying a home, especially for first time home buyers, a dream rather than a reality. While the recent legal settlement by the National Association of Realtors will not make the housing market easier to understand, it may make it more affordable to buy a home.
When preparing to buy a home, especially for first time buyers with little knowledge of the real estate market, having a realtor to aid in this stressful and overwhelming process often proves to be beneficial. However, buyers are not the only ones with realtors; sellers also have realtors who help ensure they are getting the best deal possible for their house. At least, that’s what they were supposed to do.
On August 17, after the NAR, an association that represents and lobbies for realtors, settled a lawsuit that was filed against them, realtors began following a new set of rules as part of the housing sales process. This lawsuit, brought against the NAR in 2023 by six homeowners in Missouri, will drastically impact the way homes are sold and the rules that the NAR follows.
For every house that a realtor sells, they get paid a commission fee. For every house that a realtor helps their client purchase, they also get paid a commission fee. However, before August 17, both of those fees were being paid for by the seller of the house. These fees often averaged at up to six percent in total, typically divided between the two realtors involved in the sale/purchase. In order to combat paying such a high percentage and both fees, those selling their houses would often raise the price of their homes, which resulted in a significantly increased expense in an already markedly competitive housing market.
According to the NAR website, realtors must pay an annual fee in order to join their local NAR association. Additionally, the realtors would publish all information, including the fees that were being charged for both the realtor representing the buyer and the seller, on the Multiple Listing Service (MLS), which according to the NAR is “a tool to help listing brokers find cooperative brokers working with buyers to help sell their clients’ homes.” This is the official site where all houses for sale are listed, and practically the only one that realtors use to find houses that are available on the market.
One critical aspect of the recent lawsuit against the NAR involved the realtor fees, which were not legally mandated but were often set as an expectation by realtors in the process of selling a home. The fees that sellers were advised to pay to both their own realtors as well as those of the buyers of their houses were preliminarily listed on MLS. This practice has the potential to influence the choice of homes that buyers’ realtors would choose to show to their clients, as well as the choices that sellers’ realtors would make in showing the homes to prospective buyers. These practices could also discourage buyers’ realtors from offering to work for a smaller commission, and overall could prevent healthy competition from being incorporated into the functioning of the housing market.
These practices were potentially detrimental to home sellers. Not only were they required to pay high fees, but doing so led to increased home prices, potentially making the selling of the home more difficult. For home buyers, many of whom are being priced out of the market for various reasons, these practices added to the sense that home ownership may be out of reach.
In March, 2024 the NAR chose to settle a series of class action lawsuits like the one originating in Missouri, which challenged these NAR practices as non competitive. They did so without admitting any wrongdoing. The NAR paid $418 million (one quarter of the original $1.8 billion, a price that could have put the association into bankruptcy) in damages. In addition to providing this financial compensation the NAR agreed to require written agreements between buyers and their realtors as well as to ending the practice of publishing compensation expectations on MLS.
Therefore, while the endeavor to buy a new home will inevitably be a confusing and hard process, the new rules put in place by the NAR have the potential to make the purchase of a home much more affordable for many home buyers, turning what once was a distant dream for many into a more attainable reality.