What You Need to Know Now About the NAR Settlement

The National Association of REALTORs® (NAR) agreed to settle some of their class-action lawsuits that alleged the industry group conspired with real estate brokerages to inflate buyer-seller commissions. While the upending of this historical practice will be felt throughout the broader mortgage industry, there is still confusion about how this – and the pending settlements – will impact consumers, agents, loan officers, and other industry stakeholders.

Below is a quick rundown of the current state of play.*

The Rundown

What happened: On March 15th, 2024, NAR agreed to pay $418 million in damages to settle some of their real estate commission lawsuits. The settlement prohibits NAR from requiring a seller’s agent to engage in cooperative compensation with a buyer’s agent.

• Quick context: Historically, the seller’s agent would engage in cooperative compensation with the buyer’s agent by negotiating a commission split. The plaintiffs of the pivotal case, Sitzer v. Burnett, argued that this commission split was a conflict of interest as it incentivized buyer's agents to steer potential homeowners to properties selling at a higher value, as it resulted in a higher commission.

The settlement: Besides NAR paying damages of $418 million to the plaintiffs and $300 million toward settlement notices, the settlement requires NAR to change and implement new guidelines such as:

• Eliminates and prohibits

  Any requirement by NAR and NAR MLSs that listing brokers or sellers must make offers of compensation to cooperating brokers or other buyer representatives.

• Require pricing transparency

  NAR MLS participants representing sellers must clearly disclose and obtain approval for any payment that listing brokers or sellers will make to any representative acting on behalf of the buyer.

• It’s not set in stone

  Require MLS participants to clearly disclose to prospective homebuyers that broker commissions are not set by law and are fully negotiable.

• The buyer broker agreement

  Require MLS participants working with a buyer to enter a written agreement – also known as a buyer-broker agreement – that outlines the fees and services before moving forward with any work and before the buyer tours the home. Buyer Broker Agreements are not new. There are currently 18 states that require buyer broker agreements (these are not new state law(s): Alaska, Arkansas, Georgia, Idaho, Maryland, Minnesota, Missouri, Nebraska, New Hampshire, North Carolina, North Dakota, Pennsylvania, South Carolina, Utah, Vermont, Virginia, Washington, and Wisconsin. (Bolded states are where Atlantic Bay is licensed to lend.) Buyer paid broker commissions will be classified differently for disclosure purposes on the Loan Estimate and Closing Disclosure. Under TRID 1026.37 (Loan Estimate) and 1026.38 (Closing Disclosure) and Other Costs section; requires disclosure of any other amounts the borrower is likely to pay or has contracted with a third party to pay at closing that the creditor is aware at the time of issuing the Loan Estimate.

Interested Party Contributions: On April 15, Fannie Mae and Freddie Mac announced that they will not count buyer’s agent commissions as part of their allowable interested party contributions (IPCs). This is not an update to their selling guides, but a clarification on how seller-paid real estate agent fees are treated. Fannie/Freddie guidelines allow sellers to contribute 2-9% of the property value toward the borrower’s closing costs. In their announcement, Fannie and Freddie stated that “fees or costs customarily paid by the property seller according to local convention are not subject to these financing concessions limits.”

Why it matters: The new terms outlined in this settlement will have ripple effects that both consumers and industry stakeholders will likely experience.

• The consumer impact:

  Consumers may feel more pressured to finance the broker’s commission into their loan. This could negatively impact underserved, low-to moderate-income, and first-time borrowers who may not have the necessary means to fund a buyer’s commission out of pocket.

• Higher mortgage costs:

  Financing the buyer-broker commission into the loan poses challenges to the Section 32 points & fees test, which could lead to an increase in higher-cost mortgages and non-qualified mortgage (QM) loans.

• The agency impact:

  FHA recently put out a FAQ which reinforced its current policy will remain intact:

  “Under existing FHA policy, if sellers continue to pay buyer-side real estate agent commissions and fees as a manner of state and local law or custom, and if the commissions and fees are reasonable in amount, existing policy would not treat those payments as interested party contributions provided all other requirements are met.”

Legal Developments: On April 5, the U.S. Court of Appeals for the District of Columbia reversed a lower court decision that prohibited the Department of Justice (DOJ) from re-opening its investigation into NAR. The April 5 ruling paves the way for the DOJ to re-open its investigation. On April 23, the Judge presiding over the NAR Lawsuit and Settlement granted a preliminary approval of the Settlement as presented. The final approval hearing is expected to occur in November 2024.

What’s coming up: As the details of this settlement and following lawsuits are finalized, industry stakeholders and consumers will have a clearer understanding of how to navigate this new mortgage landscape.

The Atlantic Bay way: Atlantic Bay is committed to ensuring that the homebuying process remains as straightforward and affordable for our customers as possible. That means giving you the straight facts of the case and ensuring you are up to speed with how these changes will impact you.

*Atlantic Bay Mortgage Group will continue to update this page as more information becomes available. Last updated April 24, 2024.