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The NAR Lawsuit Settlement


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I didn’t think I would be talking about this topic because I wasn’t sure there was enough interest in it – but after tons of mails and requests from people to explain how the situation will affect them, I changed my mind.

If you’re not familiar with the situation, this is huge… It affects everyone from buyers and sellers to existing homeowners, but most of all, real estate agents. Though I haven’t had an active real estate agent license since 2020, I’ve spent my entire career – starting in 2008 – working as a real estate agent and buying my own real estate properties, before I transitioned full-time to YouTube. This is a topic I have very strong feelings about both as a homeowner and a prior home seller.

So I’ll be diving into the questions at the top of everyone’s mind:

  • Is this going to lower home prices?
  • What impact will this have throughout the real estate market?
  • How will this impact you the next time you decide to buy or sell a home?

Unlike a lot of people commenting about this now, I have no skin in the game, but I do have significant experience in the industry, so I’ll tell it like it is.


The perks of being a NAR realtor

It all starts with the National Association of Realtors – a trade organization that real estate agents can pay into if they want to get designated as a “realtor.” What does that actually mean? It means you’re pledged to a higher code of ethics, you adopt additional industry standards, and you get access to everything here. It is possible to work as a real estate agent without joining the NAR, but such cases are very rare – usually people who work in niche situations like representing a bank offloading foreclosures.

If it’s not mandatory, why do real estate agents pay to join the NAR? There are three reasons:

  1. While joining the NAR wasn’t mandatory when I started out, pretty much no brokerage would hire you. It was an informal requirement.
  2. If you wanted to access the statewide real estate forms – purchase agreements, disclosures, and hundreds of other documents – you need to join the local realtor’s association, which requires you to join the NAR first.
  3. It opens up a door to a website that every agent uses: The MLS, also known as the Multiple Listing Service.

The MLS was the “holy grail” of real estate websites that would allow you to search public records, active listings, expired listings, sales history, past agents, current agents, and so much more. It’s like a Zillow, but 100x better (no joke). But on top of all that, the MLS had something that no other website had: The Selling Agent Commission.


How a home sale deal is done

When you buy or sell a home, the payment structure works something like this:

  • As a seller, you want to put your home on the market. You interview multiple agents and pick one to represent you. You then sign a listing agreement that gives the agent a specified amount of time to sell the house, and they get paid a commission if they’re successful.
  • On the other end, the buyer appoints a buying agent who represents their requirements and helps them locate a good house, get it inspected, verify the paperwork, and help them get a good deal. They too get a commission.
  • This commission is (and always has been) completely negotiable. Where I worked in Los Angeles, the typical commission rate was 5-6% split between the listing agent and the buyer agent.
  • But while selling agents’ commissions were flexible, it was rare to see a listing that offered less than 2.5% to buyers’ agents. If it was, it was typically on listings priced over $10m-$20m.

Now, there are a lot of variations in how the actual process works out: Sometimes, the seller would ask for a discount, sometimes they wouldn’t, sometimes they wanted to pay an amount that was too low to take on, and we found a compromise. But no matter what the listing agent would get paid, the vast majority of buyers’ agents’ commissions across the industry were displayed at 2.5%-3%.

The thinking behind this was that buyers’ agents should have an even playing field, no matter which property their client chooses to buy. This also gave buyer agents a financial incentive to bring as many buyers through these homes as possible, in an effort to give it as much exposure as they could – the more a buyer’s agent is paid, the harder they’ll work to bring a client by, which is ultimately good for the seller.

Buyers’ agents like this weren’t always a thing and their importance is somewhat new. Before the internet, it was customary for brokerages to represent both buyers and sellers. But when lawsuits in the 1990s brought attention to the fact that some buyers were not being fairly represented, laws were passed that made it the norm for buyers to use their own agents to bring in a neutral third party that represented their best interest. After the sale was made, it was typically the responsibility of the seller to pay these fees since this would lower the upfront cost for a buyer to obtain the dream of homeownership. That was until recently...


The NAR class action lawsuit

This is what you came for. The lawsuit, filed in 2019, alleges the “existence of an anticompetitive agreement that resulted in home sellers paying inflated commissions to real estate brokers or agents in violation of antitrust law.” The claim is that real estate agent commissions have remained artificially high, because the MLS “requires” that home sellers offer compensation to the buyer’s agent.

Technically, this advertised commission is negotiable – but since the MLS has brought “accepted” commissions to 2.5%, any listing offering less than this amount can be ignored by agents who have an incentive to steer their client to other listings.

The lawsuit suggests that if buyers had the freedom to negotiate their own price, commissions would begin to fall as agents competed for the buyers’ business, and that should theoretically bring down the cost of buying a home. Which brings us to the settlement:

On March 15th, after 4 years of navigating the lawsuit, the NAR made the decision to settle for $418 million, and in turn the entire commission structure would be revamped to help lower prices, allow for more competition among agents, and hopefully save the consumer money. In fact,

The NAR agreed to no longer require a broker advertising a home for sale on MLS to offer any upfront compensation to a buyer’s agent.”

Here are some other implications of this:

  • They’re also requiring that agents have a signed buyers agreement before touring any properties listed on the MLS. That way, those buyers can negotiate ahead of time how much they want to pay for their representation.
  • Some analysts believe that this rule change will lead to lower agent commissions – and could persuade some homebuyers to skip using an agent altogether.
  • While homebuyers could still ask a prospective home seller for a concession that includes money to help cover the buyer’s agent compensation, a home seller with multiple offers, for example, could refuse such a request – or opt to go with a bid from a different buyer.

The court still needs to approve the terms of the settlement, and these changes aren’t poised to go into effect until July of this year. But regardless, there are huge changes coming to the entire real estate industry – and here’s what it realistically means for you:


How it affects you

As far as the NAR is considered, they have a few problems, to put it mildly. After a tumultuous few years with much controversy, they are now in a position where they’ll have to pay out $418 million over the next 4 years when they have made only $22 million in profit in 2022. Only time will tell how they can afford this, but one thing’s for sure: Sellers won’t see much of that money. Given that there are 21 million Americans who are part of the settlement-class, after deducting legal fees, the payout could be as low as $13.

The practical changes though, are going to be much more significant. If you’re a seller, the only confirmed change is that you’re no longer required to offer compensation to the buyer’s agent. This could save sellers some money as they could list on the MLS and get the same level of exposure as before, offering nothing. For buyers, it isn't as straightforward: According to the settlement, it’ll soon be required to sign a buyer’s representation agreement before touring any MLS-listed property, meaning the agent is no longer “free” for them to use.

Earlier, when the commission payout was the seller’s responsibility, there would be a commission of 5-6% evenly split between the listing agent and the buyer’s agent, no matter what, so the buyer might as well opt for representation. But now it isn’t so black-and-white. Buyers might have for flexibility, asking for a flat rate service or payment by the hour. Agents would present this in their offer, and the seller would negotiate based on the net amount they’d receive after sale.

Here’s where things get tricky:

  1. Buyers probably wouldn’t want to pay a cost like this out of pocket, when so many of them are cash-strapped to begin with. So any commission would be “baked into” the selling price of the home. But some mortgage options like VA loans “prohibit buyers from paying real estate agent commissions.” If there is no offer from the seller to pay commissions, it puts VA buyers at a disadvantage.
  2. Some buyers might simply choose to forgo any representation as a way to save money or make their offer competitive. This is incredibly risky. There’s a stereotype that agents are glorified door openers, but as someone with experience in the field, the delicate part of the process is in putting together a convincing offer, performing inspections, negotiating and navigating issues, and coordinating a smooth closing – not to mention taking care of the paperwork.

Having knowledgeable representation can save you a lot of money, and save you from significant mistakes that you could make if you don’t know what you’re doing. If you think that there’s no incentive for a buyer’s agent to negotiate the price down because they make more money when the price is higher, that’s probably not the case – Most agents only get clients based on referrals and word of mouth. A single bad experience would completely wipe them out of business, and it’s in their best interest to go the extra mile and make clients happy rather than squeezing more money upfront.

Finally, as far as real estate agents are concerned, the truth is: it’s just like any other business. There are also really bad agents who casually get the license and don’t have the knowledge or experience to justify what they charge to buyers. But there are also incredible agents who know the intricacies of every single home, build relationships with every other agent, pick up the phone 24/7, negotiate with skill, and navigate a deal better than anyone else. Finding such an agent can save you thousands of dollars and a lot of emotional stress, more than justifying what they charge.


That’s why, I believe this entire settlement will bifurcate the market into two categories:

  1. Where buyers risk it themselves in pursuit of a discount service that saves them money upfront.
  2. Where buyers need to be very selective in terms of whom they work with, while fully understanding the services that an agent offers.

The majority of real estate agents will really need to demonstrate their value – they’ll likely no longer be able to casually do deals on the side earning 2.5% on the selling price, and if they can’t convey the value their services offer, they won’t last.

In terms of what this means practically for the entire industry, the structure of deals might change to include buyer agents’ fees into the price of the home – for example, a $500,000 home with a 1.5% commission could be sold at $507,650, and both parties walk away happy. This is how it works in Commercial Real Estate and that industry has been going strong for decades. Another possibility is that the buyer has an agreement to pay their agent a fixed dollar amount, which is stored in escrow, without involving the seller.

Or there’s a third possibility that the industry might continue to operate with the de-facto standard of 2.5% commissions, without explicitly advertising it on the MLS – and this turns out to be a big nothing burger. Unfortunately I don’t think any of this will bring down housing prices, but I do think this will significantly cut down on incompetent buyers’ agents, who could get by doing the bare minimum.

For all the agents out there – the good ones could do even better if they convey the value they bring to the table, but the hard part is that most first-time buyers will probably look at the amount they pay for these services, and question the value. They might think they could do it themselves, and then, they might pay a discount service to draft some initial paperwork to get the ball rolling. As a result, some will get screwed over, some will save money, but I don’t think this is going to result in home prices coming down anytime soon.

Also, just my opinion – the settlement still has to be approved. And a lot can happen, until then. Stay tuned for more guidance on how this is actually going to play out.


That's it for today. I hope you enjoyed this article. Let me know your thoughts by responding to this email - I read every single comment :)

Stay safe, stay invested and I will see you next week – Graham Stephan.

113 Cherry St #92768, Seattle, WA 98104-2205
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Graham’s Newsletter

A 33 year old real estate agent and investor with over $120M in residential real estate sales. This is my way of sharing actionable ideas that will make you a smarter and wealthier investor.

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