Effects of the Recent National Association of Realtors Ruling

NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world. 

The recent ruling involving the National Association of Realtors (NAR) is expected to have implications for real estate buyers, sellers and members of the Real Estate Board of New York (REBNY). Keep reading to find out what these groups can expect in the aftermath of this ruling.

Background

The NAR settlement stems from a 2019 lawsuit filed by a group of Missouri home-sellers alleging antitrust violations. In it, they claimed that the NAR’s practices inflated real estate commissions, particularly through rules requiring the listing of commission offers on Multiple Listing Services (MLSs). The plaintiffs argued that these practices incentivized buyer agents to favor properties with higher commissions, ultimately harming consumers.

On March 15, 2024, NAR agreed to a settlement of $418 million and to the following provisions:

1. Prohibit commission offers on MLSs: NAR must prohibit buyer agents from listing commissions on the MLS, thereby allowing consumers to negotiate commissions directly with agents.
2. Require written agreements for buyer representation: Buyer agents will be required to enter into written agreements with clients before showing homes to ensure transparency about services and fees. Notably, sellers can still offer compensation off of MLSs, and buyer concessions for closing costs will continue to be allowed on MLSs.

These changes went into effect on August 17, 2024. Notably, the settlement does not directly affect the amount that real estate agents earn in commissions, but instead focuses on transparency and consumer negotiation.

Impact on REBNY Members

1. Changes in Commission Practices:
   • REBNY members — especially brokers and agents — will need to adapt their business practices. This includes updating contracts, disclosures, and marketing materials, while also reevaluating how they disclose commission arrangements and structure their services and fees.
2. Increased Competition:
   • The ruling may lead to heightened competition among brokers as buyers and sellers become more aware of commission structures and seek more cost-effective or transparent options. To stay competitive, REBNY members may need to distinguish themselves by offering better service, market knowledge or alternative commission models.

Impact on Buyers & Sellers of Property in New York

1. Greater Transparency in Commission Payments:
   • The NAR ruling is expected to lead to greater transparency around real estate commissions. Specifically, buyers can expect clearer disclosures regarding who is responsible for paying the broker’s commission. Historically, sellers paid both the listing agent’s and the buyer’s agent’s commissions with buyers indirectly covering the cost through the sale price. However, going forward, there may be more upfront discussions about commissions, which could give buyers more leverage to negotiate these fees.
2. Potential Reduction in Buyer Costs:
   • With increased transparency, there will likely be downward pressure on commission rates, potentially leading to lower overall costs for buyers. Accordingly, as agents compete, buyers may benefit from reduced commissions.
3. Potential Unintended Consequences:
   • The increased ability to negotiate commissions could lead to more confusion and create additional friction in transactions. For example, before the ruling, commission structures typically followed standard practices, which allowed both parties to focus more on the overall sale price, rather than the specifics of the commission.
4. Different Structure, Same Pricing Decisions:
   • The NAR ruling may not have a material effect on New York’s real estate market, which could largely continue operating as it has been. Because real estate transactions are often complex, buyers and sellers typically rely on knowledgeable agents to guide them through the process. As a result, commissions may largely remain the same, whether paid by the buyer or seller. While the payment structure may change, these costs will still be factored into the final purchase price. At the same time, sellers will continue to focus on their net returns after deducting all costs, while buyers will focus on affordability and their own closing costs.

Conclusions

Overall, the NAR ruling is expected to encourage a more competitive housing market, resulting in a net benefit to the buyers. That said, the full effect of the settlement remains uncertain, and there is some skepticism about whether it will meaningfully reduce costs for homebuyers.

About

John Pak serves as the Real Estate Chair at the Law Offices of Pardalis & Nohavicka. He is a transactional attorney specializing in acquisitions, dispositions and leasing.  A graduate of Brooklyn Law School, he received his BA in Political Science from New York University.  Prior to joining PN Lawyers, John owned his own private law practice for 15 years and a title company for 6 years.