NAR settlement could ‘force innovation,’ and other reactions 

A week after NAR announced its settlement in the commissions cases, reactions from those in the industry are still flowing in — including new comments from NAR itself. 

In a video shared by the National Association of Realtors this week, NAR President Kevin Sears said there was "no perfect option" and provided more background on NAR's position to settle and the other options the organization had.

"Despite what people may have said, we've always been open to settlement," he said. "In fact, we had settlement talks before the trial, during the trial, and obviously after the trial, and once the verdict came down, we were left with three options."

Two options involved appealing, which Sears described as "untenable." Had NAR chosen to appeal, Sears said, the association would have been forced to post up to a $5.4 billion bond. And even though Sears believes NAR would have been successful upon appeal, that financial obligation would have "forced us to file Chapter 11 bankruptcy," he noted. 

The other downside to appealing is that member brokers and MLSs would still be vulnerable copycat suits. NAR's settlement agreement protects most (but not all) brokerage firms and MLSs.

"At the end of the day, bankruptcy was just not something that we could do to the association. It would have just had too big an implication for our ability to be able to continue on and be as effective as we have. So that leaves settlement."

Others have chimed in with thoughts and responses to NAR's settlement and the future of the residential real estate industry.

Ed Zorn, CRMLS general counsel, in a discussion with CRMLS CEO Art Carter: "The reality is the industry system that's been in place for 30-40 years went to trial, and this side lost. That's the reality of it. A jury looked at the facts and applied the law and determined that there were problems with this offer of compensation in a way that buyers don't have an opportunity to negotiate their side of the transaction, and that was the decision that was made.

It's interesting when people say real estate is going to end as we know it. I look at these changes and go, I'm just gonna get paid like I do on a commercial deal. And when I close a commercial deal, the closing statement on a commercial deal — if I laid it next to one of the deals on my closings on a residential deal — looks exactly the same. And what I mean by that is the seller paid me as the buyer representative my fee."

Budge Huskey, CEO at Premier Sotheby's International Realty, on the challenge of financing commissions: "The reality is that most mortgages are ultimately sold to Fannie and Freddie and both have no provisions for commissions to be financed. In fact, the VA loan program expressly prohibits the borrower from paying any form of commission in a real estate transaction. So just how as a veteran who has honorably served his or her country, now better off without representation?

The settlement figure is huge. Yet when one divides the amount by the number of potentially qualifying consumers it works out to be about 10 bucks per person. The only people truly profiting are the class action attorneys who have submitted a request to the court for over $80 million in legal fees."

Emily Chenevert, CEO of the Austin Board of Realtors and Unlock MLS, on commissions: "There have been several reports stating the settlement proposes eliminating the use of 'standard commissions.' That is inaccurate. NAR and the Austin Board of Realtors do not set commissions for real estate brokers or their agents. Commissions related to both the buying and selling of real estate are negotiable. 

This litigation centers around the rule requiring that listing brokers offer compensation to buyer brokers as a condition of participating in the MLS. With this proposed settlement agreement, NAR would agree to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. Commissions are and will remain negotiable."

Danielle Hale, chief economist at Realtor.com, on the impact to consumers: "These changes could put more pressure on buyers if they are responsible for compensating their own agents directly, at a time when home prices are high and elevated mortgage rates make borrowing expensive. Some buyers might have to lower their target price in their home search to account for this newly-added expense, but even if home prices were to fall in the future, buyers' costs are likely to rise by a similar amount if they are having to compensate agents directly. 

It all remains to be seen though what the impact might be, because new business models, mortgage financing options, and more could give home shoppers additional options in the future. For now, higher mortgage rates and the low inventory of homes for sale will likely have a bigger impact on home sales and prices this buying season."

York Baur, CEO at MoxiWorks, via LinkedIn: "My belief is that the north star for our industry has always been the seller, and that agents' spheres of influence are the overwhelming source of those sellers. There's a lot to be figured out about buyers from here, but my strong guidance to everyone, including everyone at MoxiWorks, is to focus on finding and winning listings.

The homeowners, they need you more than ever. This settlement has made the media think that buyers agents are going to go by the wayside (not true). They are also getting fed headlines about how interest rates, mortgage rates, everything is the worst. It's not the worst. Buying and selling a home is still a smart idea, and consumers will continue to transact homes for the same life reasons they always have. But because of this confusion they need you, they need your agents. And, the economy needs your agents."

Tom Ferry on the most important things agents should do now: 

"1. Get updated contracts immediately! Don't wait until summer to get started with this! 

2. Review your local and state laws and protocols. This isn't just about protecting yourself. If you want to be effective, you need to be confident, and nothing will destroy your confidence like not being certain of the realm you're playing in. 

3. Make sure you're able to mention buyer compensation on your website if you want to (or any site for that matter). You need to understand what your local laws consider to be a part of the 'MLS.' Facebook groups or anywhere public are considered to be an MLS and are therefore a no-go. To market your listings as effectively as possible, you need to know where to put your focus. 

4. Remember that there are still buyers out there right now, and there will be even more in the spring and summer markets. 

These buyers NEED YOUR HELP. It's your duty to step up your game and be there to serve as many of them as possible."

Barbara Corcoran, founder of The Corcoran Group, on Instagram: "The changes brought on by the NAR settlement put power in the hands of the homeowner. Agent commissions are sure to become more competitive and the cost of selling a home will go down. But it's hogwash to expect the cost of buying a home to come down! The real driver in today's market is the shortage of homes and the too many buyers who want them. And if interest rates come down a point by year end, we'll see home prices up another 10% as the buyers rush into the market.

That said, it's a scary time for real estate agents. The decades-long certainty about the 5-6% commission is over. But whenever there's an industry shakeup — and I've seen many — good things come out of it that we can't see from where we're standing now. It forces innovation and the creation of new business models."