In March 2024, the National Association of Realtors (NAR) entered into a proposed settlement agreement with various homeowners to resolve a nationwide litigation concerning broker commissions. This is the result of a federal lawsuit changing the way consumers negotiate and pay real estate agents. In October 2023, a federal jury in Missouri found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions. The brokerages and the NAR settled out-of-court, agreeing to pay millions in damages and change some of their long-standing rules (Bankrate).
This settlement will bring significant changes to the home building and construction sectors, as well as the Homeowners Associations (HOAs) sector, effective August 17, 2024. At California Builder Services, we aim to educate builders and developers on the latest policies and settlements and dispel any myths that may be of concern. Here’s how the changes from the NAR settlement are expected to play out:
Impact on Home Building and Construction
Commission Changes: The settlement will likely lower real estate commissions, affecting how new homes are marketed and sold. Builders often rely on real estate agents to sell homes, and reduced commissions may change the dynamics of these relationships. This may lead to builders having to adjust their strategies, possibly offering other incentives to agents or taking on more direct sales efforts themselves (ProBuilder) (New Home Star).
New Business Models: The real estate market could see new business models emerging, similar to when the airline industry’s commission structures were changed. This might include more digital and self-service platforms for buying and selling homes, reducing the reliance on traditional agent models (ProBuilder).
Transparency and Negotiation: The settlement mandates more transparency and clear agreements regarding agent commissions. Builders will need to be upfront about costs and commission structures, which could lead to more straightforward negotiations with buyers and agents (Real Estate In-Depth).
Impact on HOAs
Market Influence: HOAs might find that the dynamics of home sales within their communities are shifting. With lower commissions, there might be more direct interactions between sellers and buyers, which could potentially bypass traditional real estate agents. This may influence how HOAs choose to interact with residents and how they manage community sales (Real Estate In-Depth).
Policy Adjustments: HOAs may need to update their policies and communication strategies to align with the new real estate practices. Ensuring that all transactions and processes within the HOA are compliant with the new regulations will be crucial (Real Estate In-Depth).
Overall Market Adjustments
Agent Adaptation: Real estate agents will need to adapt to the new rules, possibly by diversifying their services or reducing their reliance on traditional commission-based models. This adaptation period might create a temporary flux in the market as agents and builders find new ways to collaborate (New Home Star) (Rob Thompson | Front Range Real Estate).
Consumer Costs: Buyers might end up paying for their agents directly, which could affect their overall purchasing power. Sellers, on the other hand, might see some relief in terms of reduced commission payments, potentially leading to more competitive pricing strategies (Rob Thompson | Front Range Real Estate).
Moving forward
In summary, the NAR settlement is set to introduce a more transparent and competitive real estate market. Home sellers and builders will greatly benefit from this decision, as more proceeds can be allocated towards the sale of a house. HOAs will need to adjust to these changes, finding new ways to maintain profitability and comply with the updated regulatory landscape. By focusing on customer experience from the beginning, builders can stay connected to qualified and informed buyers, ensuring that they continue to strive in this new environment.
