The Commission Lawsuit: Moehrl v. NAR

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Let's talk about the National Association of Realtors (NAR) lawsuit that was recently settled in the U.S.

The NAR was sued in a class-action lawsuit for allegedly setting up rules that made home sellers pay high fees to the buyer's brokers, keeping commission rates artificially high.

Essentially, the argument against the NAR was:

"sellers were compelled to enter into commission-sharing arrangements in order to market their homes on the MLS and not lose out on potential buyers."

So, the NAR agreed to pay $418 million and make two (2) rule changes. The latter being the more interesting part.

Rule change #1:
NAR has agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS.

This means that offering cooperating brokerage commission can no longer be communicated via the MLS.

Cooperating commission is still allowed, but it must be pursued through off-MLS negotiation with real estate professionals.

Rule change #2:
NAR has agreed to enact a new rule that would require MLS participants working with buyers to enter into written agreements with their buyers.

As I understand it, this was already regularly done - like it is here - it's simply being "required" or more regularly enforced by NAR.

This rule change seems less significant than the first.

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Thoughts:

The logical side of my brain says theoretically nothing changes.

Cooperating commission is still allowed, it's just not advertised. If all brokerages continue to operate with the same expectations, everything continues as normal.

Even if sellers stop paying both sides of the commission... theoretically (emphasis on this) nothing changes.

Home prices will be reduced by 2.5% and buyers will pay 2.5% to their agent instead of paying it on the home.

The seller receives the same net proceeds and the buyer pays the same amount as they would have in the previous model.

But of course, it's more complicated than that...

Right now, commission is paid by buyers and sellers in "low friction" ways.

For buyers, it's built into the price of the home, so it's technically financeable.

For sellers, it's deducted from proceeds (take rate), which is proven to have a different psychological effect than traditional payment.

Both situations don't require an out-of-pocket payment from the customer.

If this was no longer the case for buyers, it's certainly possible that commissions can change.

At the end of the day, we don't know if, how, or when these rule changes will actually impact commission. We especially don't know if, how, or when things will change for us in Canada.

But I want to know what you think.

Hit reply and let me know.