How the NAR Lawsuit Has Changed Home Buying FOREVER | Ep. 4
Episode Transcript
Introduction
Hello and welcome back to the DIY Homebuyer podcast. My name is Nick, your host. This show is all about empowering you as a homebuyer to represent yourself, which will save you tens of thousands of dollars by not having to hire a costly buyer's agent. It also puts you in control of the home buying process and helps you develop incredible skills like negotiation and reading legal documents and making big decisions that are going to serve you in every other area of life as well.
I truly believe that self-representation is a better way to buy homes for most people and want to get the word out as far and wide as possible. To that end, it helps tremendously if you subscribe to the show. And if you find anything beneficial here, share it with others who might be interested.
The more we can do to get the word out, the more we can do to improve the home buying experience for everybody. It is my belief that in five years, buyer's agents will be as common as travel agents – which is to say, not very common at all. I think that's a positive change.
The NAR Settlement Overview
The real estate industry changed dramatically nationwide on August 17, 2024, when the NAR settlement went into effect. In this episode, I want to break down:
What were the causes that led up to the lawsuit against the National Association of Realtors and many large brokerages
What are the immediate changes now in effect
What I think is going to happen in the future
I'll be referencing a document created by the Department of Justice that does a fantastic job of summarizing the causes of the lawsuit against NAR.
Core Issues in the Lawsuit
The DOJ document starts by explaining that NAR has promulgated rules, policies and practices that resulted in:
Less competition among real estate brokers
Detriment to American homebuyers
The specific rules and practices in question included:
1. Commission Concealment Rules
Prohibited MLSs from disclosing to buyers the commission that buyer brokers would earn
Sellers would specify buyer agent commission (often 2.5-3%) but buyers couldn't see this information
Created lack of transparency in the transaction
2. Free Service Rule
Allowed buyer brokers to mislead buyers into thinking their services were free
Hid the fact that buyers ultimately pay for these services through the purchase price
3. Commission Filter Rules
Enabled buyer brokers to filter MLS listings based on commission levels
Allowed exclusion of homes with lower commissions from buyer searches
Created steering issues where agents could hide properties offering lower commissions
4. Lockbox Policy
Limited access to property lockboxes only to NAR-affiliated MLS members
Created artificial barriers to competition
Understanding NAR's Structure
NAR is the leading national trade association of real estate brokers and agents, with:
1.4 million member realtors
1,400+ local associations
Control over local Multiple Listing Services (MLS)
Authority to set rules that all members must follow
The Settlement's Impact
The August 17, 2024 settlement requires several major changes:
Compensation Transparency
Buyer agent compensation can no longer be listed in the MLS
Creates more transparency in the transaction
Required Buyer Agreements
Agents must have signed agreements with buyers before showing homes
Commission must be agreed upon upfront
Buyers must acknowledge they may need to pay agent fees if seller doesn't offer compensation
Anti-Steering Provisions
Agents cannot steer buyers based on commission offerings
Must show all properties that match buyer criteria regardless of compensation
Future Implications
These changes are likely to lead to:
Lower overall commission rates
End of cooperative compensation arrangements
More transparent negotiations
Increased opportunity for DIY homebuyers
Reduced steering and bias in home showings
Benefits for DIY Homebuyers
Self-represented buyers can now:
Save 2-3% on purchase price
Make more competitive offers
Have more transparent negotiations
Avoid paying unnecessary fees
While you may still need some professional help (like a real estate attorney or coach), the total costs will likely be significantly less than traditional buyer agent fees.
Closing Thoughts
The real estate industry is changing, and these new rules benefit consumers who are willing to represent themselves. While there may be some initial resistance from traditional agents, the trend toward self-representation is likely to continue growing.
Remember that real estate transactions, while significant, are not as complex as some agents would have you believe. With proper education and targeted professional help when needed, most buyers are completely capable of representing themselves.
