What Will Be the Effect of the NAR Lawsuit on the Real Estate Industry?

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Whether pertaining to real estate agents or to sellers and buyers of homes and other real property, the future effect of the recent National Association of Realtors (NAR) lawsuit settlement is still unclear. Even though some industry pundits can’t help but make predictions, there are currently too many unanswered questions and unaddressed practical matters to accurately predict how things will ultimately end up in the real estate marketplace.

Indeed, the court decision (which led to the settlement) may yet be overturned. Unlike the NAR and certain other defendants that settled with the plaintiffs, some defendants did not settle and are continuing to appeal the court decision. Consequently, while it is expected the fundamental structure of the NAR settlement will become effective by July, it may be some time thereafter before it’s clear what practical day-to-day changes, if any, will occur.

And, of course, what happens if the non-settling defendants prevail on appeal? The NAR settlement would apparently still be valid yet predicated on a court decision that would no longer be valid.

Also keep in mind that the fundamental premise of the lawsuit was that if sellers only pay their own commissions, and buyers pay their own commissions, overall commissions will go down and, ultimately, cause the sale price of the property to go down as well. Simplistically, on the surface, all that may seem to be the case. But when you look deeper, I don’t think that the realities of the real estate business support these assertions.

Nevertheless, given the NAR settlement, is it likely that the real estate industry will look and behave dramatically differently six months to a year down the road? I think not. And that’s because, generally, the fundamental factors that dominate the ongoing and dynamic real estate marketplace will remain the same: sellers needing to sell, buyers needing to buy, and real estate agents—for a fee that has always been (and always will be) negotiable—working to facilitate the process.

Under the settlement, will the amount of sales commission sellers will have to pay go down? Yes. However, buyers are likely to resist paying their own commissions. Why? Many—most—buyers are on a strict budget and don’t have money to pay a commission, in addition to their down payment and other transaction closing costs.

By Fred Wilson

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