What are the implications for Canadian industry of the NAR settlement?

The National Association of Realtors, in response to a flurry of lawsuits related to commissions that caused upheavals, recently brokered a groundbreaking agreement, promising reforms and restitution.

The agreement is worth $418 million over a four-year period. “sweeping”The process of buying and listing homes in the United States has changed. At the heart of this settlement lies NAR’s decision to no longer mandate listing agents to determine compensation for buyer brokers on MLS, aiming to enhance transparency and fairness in real estate transactions. 

This change means that compensation for buyers agents will no longer appear publicly in multiple listing services. However, it can be found on brokerage websites and non-MLS sites. As we dissect the details of this settlement, it will be clear whether this settlement heralds a new era for negotiation dynamics between clients and agents. 

Understanding the impact on the industry

Rob Hahn, a commentator, says that despite the appearance of resolution, many industry insiders have a bad taste in their mouths. Critics argue that the terms of the settlement, particularly NAR’s perceived concession, fall short of providing a clear victory.

Hahn suggests that NAR’s agreement, while seemingly substantial, exposes the organization to disproportionate liability compared to other defendants. NAR has agreed to pay a large part of the damages as well as implement extensive reforms. This has raised concerns about the industry’s long-term implications.

The settlement also has notable exclusions.

First, it only covers over one million NAR members, state and local realtor organizations — the settlement specifically leaves out certain brokerages that continue to engage in litigation or have reached their own settlements, and it excludes non-NAR member MLSs as well as brokerages with transaction volumes exceeding $2 billion in 2022.

Second, the agreement doesn’t prohibit buyer agents from collecting fees and it doesn’t restrict where selling agents can advertise buyer agent fees. The agreement allows for both buyer agents to receive compensation as well as real estate agents to continue advertising buyer agent compensation across various platforms including websites that are not NAR members like Zillow and OJO. This aspect raises concerns about whether the lawsuit is going to succeed. trulyChanges that are significant should be made.

Brokerage responses to settlement

The real estate industry is facing divergent reactions to the ongoing legal saga in the wake of the settlement. Some brokerages see the settlement as a way to reduce legal risks and establish stability. Companies like Anywhere Real Estate or Re/Max have settled lawsuits by agreeing to adapt their business practices.

A faction led HomeServices of America is steadfastly resisting the settlement and advocating for continuing litigation. In the midst of these opposing viewpoints is a group that advocates proactive measures for tackling industry challenges. They align themselves with the reforms laid out in the settlement.

The reforms advocated would not be considered revolutionary by real estate agents in Canada. Reforms like requiring the signing of buyer representation agreements (BRAs), and preventing real estate agents from claiming that they are a buyer’s agent, would be more beneficial. “buyers don’t pay” for the agents’  services is standard practice in Canada. 

Changes to practice anticipated

In Canada, the terms of settlement and existing practices are not clear. It is also unclear what kind of changes could be made if similar settlements were to be reached. Agents in the United States are already required to talk about compensation with clients. This is usually done through BRAs. 

However, if sellers stopped offering compensation to buyers agents in bulk, agents would have to explain their value to the buyer, a requirement that is already present in Canadian BRAs. If there are no significant changes in brokerage models in the U.S. which influence Canadian consumer behavior and demand, then the impact of a settlement may be minimal.

As the dust settles on the NAR settlement, many claim that we’ll see profound changes. It’s my opinion that Canadian real estate agents and brokerages should take this claim with a truckload of salt, let alone a grain. Nonetheless, it’s prudent that brokerages and real estate agents adapt to evolving commission structures and negotiation norms, while also sharpening their ability to articulate their value to the consumer — something that we should already be doing.