NAR Settlement:
What Landlords Need to Know

Transcript

Jonathan Forisha:

I’m Jonathan, this is Krista, and we’re here to help you be a better landlord. So Krista, the National Association of Realtors has been in the news a lot lately, starting, I guess, last year. And recently there was a big settlement. So let’s talk about it. Yeah. First of all, what is NAR?

Krista Reuther:

Yes, NAR is the National Association of Realtors. It is actually the largest trade organization in the United States with 1.5 million members, maybe a little bit more, but quite a big group that’s had a lot of influence on the housing market over the years.

Jonathan Forisha:

Yeah. And people use the term realtors interchangeably with real estate agents. It should be noted, realtor really means somebody is a member of NAR. Okay, so let’s start with their bad press last year.

Krista Reuther:

It’s pretty bad. So last year there were allegations of sexual harassment against Kenny Parcell, who was the president at the time of NAR. He has since stepped down, but there were reports that there was a very toxic, fear-based work culture, whole slew of really uncomfortable allegations. And they are trying to rehab their image. Unfortunately, they are drawing fire because they’re in the news again. Yeah.

Jonathan Forisha:

So they’re in the news right now for a settlement that is not totally finalized, but is close. Tell us about that settlement. Absolutely.

Krista Reuther:

So a slew of lawsuits were brought against NAR and also a couple other companies, Zillow, Redfin. There are a bunch of folks involved, but we’re really going to focus in on NAR today. Inherently, these lawsuits were really trying to take aim at people’s ability to negotiate their purchasing deals when it comes to different pieces of property and the real estate agents and realtors involved. So originally, NAR said that they are going to try and appeal these lawsuits. They have recently, as in within the last week, decided they are going to settle instead.

So they are looking at paying $418 million to settle these lawsuits, and they are also agreeing to change their commission structure and some of their other factors with their MLS or multiple listing service websites.

Jonathan Forisha:

So it’s a big deal. It’s a big deal. $418 million, not jump change. No. But the commission change, that’s a really big deal. So I guess first, can you walk us through realtors? How do they make money? Yeah.

Krista Reuther:

So there are a couple of different structures for how realtors get paid. We’re going to really focus in on commissions because that’s what ties into this lawsuit. Yeah. Traditionally, there is a 6% commission that is assessed by some property value. It’s paid by the seller, and it’s paid to the two agents involved. Historically, that’s a selling agent. The person who’s helping that seller outflow their property, and the buying agent, the person who’s helping the buyer, of course, procure the property. So it depends on the actual brokerage for which they work. Traditionally, though, it’s going to be 3% to the selling agent, 3% to the buying agent. Got it.

However, they are looking to change this up, and in fact have agreed to nix that standard so that the commission can actually be a negotiable rate. Yeah. That’s big. It’s huge. It’s one of the biggest changes to the US housing market in the last 100 years. So it is a gigantic deal.

Jonathan Forisha:

And so when we’re saying 3%, that may not sound like much. 3%, that’s not very many percentages. But can you illustrate how much money is that per deal?

Krista Reuther:

Yeah, it’s good to get some context with some real numbers. So let’s say you are trying to sell a $500,000 house. In the old way of thinking, when you’re paying that 6% commission, that means 3% of $500,000 is $15,000. You’re paying $15,000 to your selling agent. You’re paying $15,000 to the buying agent. And again, this is all coming from the seller, right? So it’s one person responsible for both fees. In total, you’re paying $30,000 on top of anything else, clothes and cost, etc., to offload this property.

Jonathan Forisha:

Yeah, that’s a considerable amount of money. Yeah, it’s big. Okay, so now, with this settlement, looking forward, it looks like people can negotiate the rate. How is that going to work?

Krista Reuther:

Well CNN Business projects that real estate commissions are going to drop by 25% to 50%. So it’s going to become something that sellers are going to be able to negotiate with their agents. Equally, buyers are going to be able to negotiate as well, but really we’ll see more of an impact on the seller side. So if you came in and you said, hey, I’m willing to sell this property, but I want a 3% commission and you’re a charmer, you can negotiate that, that works out. So instead of paying $15,000 to each party, you’re paying $15,000 total. 7,500 to one, 7,500 to the other, you’ve just saved $15,000.

Jonathan Forisha:

Yeah, that could be huge. Could be gigantic. So a lot more negotiation. And as part of this settlement, there are two different parts, right? One of them is that commission. What’s the other one?

Krista Reuther:

The other piece relates to the MLS or the Multiple Listing Service Sites. Inherently in the past, NAR has required the selling agent to outline their commission structure with the buying agent there and doesn’t really leave a lot of room for negotiation for the buying agent.

That is now getting struck down as well. So that the buying agent has more room to negotiate. And that’s really what’s at the heart of both of these pieces of the lawsuit.

Jonathan Forisha:

Yeah, sounds like a lot more open to negotiation. A lot of things put in place to maybe encourage competition a little more than it has been. Absolutely. Interesting. So for real estate investors, how is this going to affect their ability to, let’s say, sell their real estate?

Krista Reuther:

You should be able to keep some of your money, which is really exciting, especially if you wait until the ink has fully dried on this deal, on this settlement. Again, it’s most of the way there, as I understand it. But we just want to make sure that everything’s finalized before you go celebrating in the streets so you get an extra $15,000. So once everything’s all finalized, you can then negotiate with the selling agent, especially if you’re more seasoned.

You understand the lay of the land. You don’t need as much handholding. And you could say, hey, I want to pay a lower commission. Here’s what I’m comfortable with. And they can let you know, yay or nay. And that could save you tens of thousands of dollars.

Jonathan Forisha:

Yeah. And you mentioned less handholding. So if somebody is an experienced buyer or seller, they may not need all of the general things that a real estate agent provides, like the driving around, showing you properties and doing comps and doing negotiation, paperwork, all that stuff. If I come in and I say, hey, I’ve done this a few times, all I need is for you to do the contract at the end, then it’s possible I could get a way lower commission rate.

Krista Reuther:

3,000%. You have way more leverage to negotiate and figure out what works for your unique situation and, again, save yourself quite a bit of money in the end.

Jonathan Forisha:

Are there any drawbacks to this settlement?

Krista Reuther:

So Zillow has come out and said that there could be potential drawbacks specifically for real estate agents more than buyers and sellers. So when they’re looking at what could happen with real estate agents, they expect, one, for marketing budgets to shrink for different brokerages, which could see an impact. We don’t really know exactly what that’ll be until things kind of shake out. But two, they worry that there are going to be fewer realtors out there in the world because there’s less incentive to go into this career path. OK.

Jonathan Forisha:

So potentially, really not so good news for realtors, but maybe good news for real estate investors.

Krista Reuther:

Yeah, we’ll have to see how it shakes out, but that’s how it’s looking for now.

Jonathan Forisha:

Awesome. Well, thanks for walking us through the news about NAR. If you out there have any other questions, leave them below in the comments. Don’t forget to subscribe.