Builders Prepare in Wake of NAR Settlement

In March, the National Association of Realtors settled a class-action lawsuit brought by a group of Missouri homeowners. After a court slapped the NAR with a $1.8 billion judgment – not a typo -- the trade organization settled for $418 million. The agreement is expected to be validated by the courts in July, after which the relationships among the real estate industry and buyers and sellers will change forever; just how much will be determined in the coming months and evolve over years.Next week, my newsletter – Home On The Course – will publish a deep dive on what the settlement means for buyers, sellers, real estate agencies and the agents who represent both buyers and sellers. (Subscribe to Home On The Course for free here.)

In the meantime, if you are considering purchasing a brand new home inside or outside a golf community, the changes developers and builders are considering in the wake of the settlement may help you in your search and negotiations. Of course, most homes bought and sold in the U.S. are not new; I will address the effects on those in the newsletter.

First, here are the sea changes the NAR agreed to that will change how real estate buying and selling will be conducted – although the magnitude of the changes will not be obvious until after a court confirms the settlement in July. The two major changes are that the seller’s commission rate – typically 6% in most locations – can no longer include an even split with the buyer’s agency (although most listing agencies will try to convince sellers that paying the buy side as much as 3% of the total sale price of a property will help spur a quick and full-price sale). Also, the local multiple listing services (MLS) will no longer be permitted to publish the rate a buyer’s agency will be compensated. If a listing agency convinces a seller to pay a total commission greater than, say, 3% of the property’s selling price, the seller’s agency can list at their own website a rate of compensation for the buyer agency. Otherwise, buyer agents will need to negotiate a fee with their own clients – either a flat rate or a percentage – likely less than 3% -- of the purchase price of the home they find.

Buyers, of course, may not be inclined to pay an agent for a new home advertised on the Internet or in local media that provides the builder’s contact information. Builders are preparing for even more inquiries directly from potential buyers.According to an article in Builder Online authored by Steve Laudurantaye of consulting agency Zonda Home, builders should be ready to receive inquiries from potential buyers before the buyers sign any buyer-broker agreements. Laudurantaye’s advice to builders is to make the case to buyers to deal directly with the builder/developer in order to save on buyer-agency fees. The online magazine cites the amount of money just one national home builder company, D.R. Horton, paid to real estate agencies in the last two years – a whopping $1 billion dollars. In 2023, Horton generated net revenue of $4.7 billion from the sales of almost 83,000 homes; a $1 billion payout to real estate agencies represents a good bit of shareowner value; thus the advice to work directly with interested buyers.

Buyer-broker agreements certainly will not go away completely – indeed they very well may grow -- and Laudurantaye also advises builders to prepare for those customers who come with a buyer agent in tow. Buyers will negotiate agreements with their agents, but builders will prepare to negotiate with those agents on what fee they pay for a successful sale. Buyers, of course, will be involved, mindful that any fees paid to an agent could be reflected in the pricing of the builders’ homes for sale. Buyer agents will need to muster all their communication and negotiation skills.

Many developers are likely to establish standing agreements with large volume buyer agencies to pay a set commission rate. Buyers mindful of such an arrangement will have some leverage in negotiating with their real estate agency before they sign any agreement for representation. Remember that commission rates are negotiable on both the seller and buyer side – always have been – and the fact that 6% has been the standard in most markets reflects the National Association of Realtors’ former marketing power. Not anymore; doing what the market would bear brought the NAR to court and the real estate industry to a pivotal moment.

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