Industry Decoded with Russ Cofano
Illustration by Lanette Behiry/Real Estate News

Winners, losers and a look at the post-commissions deal future 

Buckle up: The proposed NAR settlement will unleash a fast-moving wave of change – and opportunity, especially for buyer agents who can articulate their value.

March 16, 2024
6 minutes

Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.

Gradually, then suddenly! It's a favorite phrase of mine. As I write this, I cannot think of a better explanation of Friday. NAR's proposed settlement of the class action antitrust cases, and the changes that will come about as a result, have been brewing for years, even well before the filing of these lawsuits in 2019. And yet the events of March 15 seem so … sudden.

There will certainly be time for second-guessing and armchair quarterbacking about why and how the industry got to this point but that is for another day. Today, I think that new NAR President Kevin Sears deserves a hearty pat on the back for leading the association to this point. NAR was in a very challenging place and while some in the industry may not like the proposed settlement terms, this was probably as good as it could have done all things considered. One might even call NAR (the organization, not the membership) a "winner."

Before we go any further, it's important to point out that this settlement is not a done deal and must be approved by the court. That said, I have to believe that it was reached with input from the Department of Justice on what they would accept as DOJ objections likely would be the most obvious roadblock to court approval.

The shape of things to come

Ok, so what happens next? The terms of the settlement provide for a massive – and rapid – move to a model where the seller and the buyer will independently set the compensation they wish to pay to their respective agents. As I've written in the past, the current MLS offer of compensation system is a vestige of the seller subagency days and sometime this summer, that vestige will finally end.

The settlement will eliminate seller-set/listing-broker-offered compensation through the MLS and impose a new requirement that all MLS participants working with buyers must have a written buyer representation agreement before they open a door. As a result, buyer agents will have the opportunity to explain their unique value proposition and buyers will be given the opportunity to place a value on buyer agent services and accept the obligation to pay for those services.

In my last two Industry Decoded columns, I wrote that post-Sitzer verdict, buyer agency was not going away and that buyer representation agreements needed to be made mandatory by state law. Well here we are. Buyer agency is absolutely here to stay and we will soon see massive legislative efforts around buyer agency agreements.

Who's coming out on top (and who isn't)

There is too much about the settlement to completely unpack here so let's talk possible winners and losers.

NAR. I think the National Association of Realtors may have done OK here. The $400 million is a lot but they can pay it and not go bankrupt. And they continue to control policy of (most) MLSs. The biggest potential harm for NAR was loss of membership due to MLS access made optional and it seems like they skirted this one. What remains unanswered is the DOJ's response to this settlement and what is going to happen to the total number of licensees nationwide, both of which could cause NAR some real heartburn down the road.

MLSs. Big and well-managed MLSs are fine. They have been preparing for this and they will find a way to innovate to better serve the needs of buyer agents. Smaller MLSs not so much. They have little resources for programmatic or technical innovation. Also, what is going to happen with respect to the administration and enforcement of the buyer representation agreement requirement? Who gets to do that? MLSs? State regulators? No clear answers here but the new rules will not enforce themselves and there will be cost to enforcement.

Brokerage firms. From a pure near-term economic perspective, the big brokers who got released are sitting pretty right now. The 90+ brokerage firms that did not have some problems. On the rules side of things, the settlement restrictions for the most part limit what goes on with compensation data within the MLS. Internal brokerage firm communications of compensation might well increase dual-sided/same-firm sales. And, the larger the firm, the better positioned it will be to innovate here. All firms will have to deal with an industry that is going to shrink in numbers (see below) and top-line gross commission income that will undoubtedly decrease. This, on top of the challenging market, may be too much for some to bear.

Agents. We know there are some agents who have never discussed compensation with their buyer clients. Some said they were "free" to the buyer. Some are unable to explain their value beyond opening a door. And some who just plain have no value proposition. How many of the 2 million-plus licensees fit these criteria? Don't know. But for these agents, their tenure in the business is short-lived. Everyone else will be fine. They will up their game to deliver more and better services to buyers and be properly compensated for the same.

Consumers. Mostly winners. While there may be some who opt in to dual agency for whatever reason (economics, ease, etc.), most will find a way to get single-agent representation and pay for it. There is a lot the government can, and I believe will, do to protect those who need it. Most consumers will continue to use buyer agents and reap the benefits of increased competition on the buyer agent price/value equation.

In the coming weeks and months, much will play out. I hope that the industry truly leans into these changes as there has probably never been an opportunity quite like this to elevate its overall professionalism. While not everyone may end up a winner here, the industry certainly can come out stronger and better positioned to thrive in the long run.

Russ Cofano is the CEO of Collabra Technology, which operates the digital marketing platform SphereBuilder™. He has more than 30 years of senior leadership experience in brokerage, technology, MLS, associations and affiliated businesses. Previous roles include president and general counsel of eXp World Holdings and SVP of industry relations at Move, Inc. The views expressed in this column are solely those of the author.

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