In the wake of the National Association of REALTORS®’ (NAR) settlement and practice changes that went into effect on August 17—including the removal of compensation offers from Multiple Listing Services (MLSs) and requiring MLS participants to enter into written agreements with buyers—real estate leaders are still learning the full effect these practice changes will have on the industry.
During a “Lunch and Learn” panel discussion December 5 hosted by Women in Housing and Finance, key stakeholders from NAR, Zillow, Absolute Home Mortgage and law firm Weiner Brodsky Kider PC examined the impact of the NAR settlement and new buyer agreement standards on real estate practices.
Consumer choice and transparency
As NAR has continued to defend the policy changes included in the settlement as necessary to protect the industry, Matt Troiani, NAR senior counsel and director of legal affairs, started the discussion by highlighting the importance of preserving consumer choice in offers of compensation and transparency in transactions.
“We believe in consumer choice. The seller should have a choice as to how they advertise interest in a property to the broadest range of prospective buyers. Buyers should also have the ability to ask sellers to make contributions toward that,” he said. “We wanted to make sure that those choices that sellers and buyers could make were preserved.”
Matthew VanFossen, Absolute Home Mortgage Corporation’s CEO, argued that the settlement prioritized consumers. “The intention of the settlement and the heart of it is: ‘Are consumers informed? Is there that transparency and do they have choice?’”
VanFossen noted how the effects of consumer choice will be apparent in the free market.
“If a broker is too aggressive on their tactics upfront of what agreements want to be signed, then a consumer is going to question it,” he said. “They’re going to read what they’re signing—if it’s a contract—and they have the choice to go elsewhere. And quickly, that broker will change practices if they’re losing consumer accounts.”
“August 17 came and went, and the sky didn’t fall.”
After the changes were announced back in March, there were many both inside and outside the industry who worried about immediate, existential impacts on practitioners. A little under four months since the deadline, the transition appears to have gone a whole lot smoother than worst-case scenario projections, but plenty of uncertainty remains.
Zillow’s Senior Manager of Government Relations Mike Dendas noted that the full impact of the settlement on consumer negotiation and commission compression is “yet to be seen,” stating “August 17 came and went, and the sky didn’t fall.”
Similarly, Tim Ofak, partner at Weiner Brodsky Kider PC, emphasized that the industry has not seen a lot of changes yet during the three months since the settlement passed.
“The industry still may evolve and progress on how these broker agreements are being utilized and how the negotiation tactics may change,” Ofak said. “Looking at it from a year now, things may look a little different.”
In the weeks after the August 17 implementation of the settlement, RISMedia tracked several significant changes in commission and compensation practices, but also found indications that many other practices remained persistent despite the new policies.
Fair housing implications
Though the settlement prohibits MLSs from displaying compensation offers, the same rule does not apply for private listing networks, said Dendas.
“From (Zillow’s) perspective, it’s really hard to overstate the danger that comes along with the proliferation of private listing networks,” he said. “The fair housing implications of putting up artificial walls around listing information is pretty clear.”
Troiani expressed similar concerns, noting that offers of compensation can still be shared through a broker’s website, on marketing materials, social media and in response to inquiring brokerages.
“The extent to which you have multiple brokerages now coming together on these platforms—exchanging offers of compensation, sharing details and information about the properties for sale,” he said. “If it looks like a duck and acts like a duck and talks like a duck—that’s essentially becoming an MLS by another name.”
Given that the lawsuit settlement requires that NAR members adhere to the practice changes for the next seven years, Ofak heavily advised brokerages against rushing into figuring out next steps.
“You need to really take care to make sure you’re complying with the settlement, complying with the terms on a go-forward basis,” he said. “For people rushing to try and just come up with a new way to go about business as usual, that may be to their detriment down the road.”
Ofak also warned against the increasing potential for negative impacts that can be passed onto the consumer.
“Prior to the settlement, there was more uniformity, and now we’re going into less uniformity—and every buyer is going to start negotiating with their broker, moreso than they did before, probably on the seller side as well,” he said. “Because of those individual interactions and the increase in them, I think the risk of disparate treatment may rise now.”
This could have negative effects on availability and access to homes, detailed Ofak.
“If things shift a little bit and buyers have to start paying more of their broker’s commission, that’s going to lower their amount of cash that they have to potentially buy the home. And so for first-time homebuyers and low-income homebuyers, that could be a detriment to them,” he said. “I think right now we are seeing that sellers are still contributing, but if that changes, then I think those two groups may either have trouble buying a home or they won’t be able to buy as much of a home.”
