The NAR settlement and its far-reaching implications: What does it mean for the Canadian industry?

In response to a flurry of commission-related lawsuits causing upheaval, the National Association of Realtors (NAR) recently brokered a groundbreaking settlement, pledging reforms and financial restitution.

Valued at $418 million over four years, the agreement promises “sweeping” changes to the process of buying and selling homes in the United States. At the heart of this settlement lies NAR’s decision to no longer mandate listing agents to determine compensation for buyer brokers on MLS, aiming to enhance transparency and fairness in real estate transactions. 

This shift means that compensation for buyer agents will no longer be publicly displayed in multiple listing services (but can be available on brokerage websites or non-MLS sites). While many non-industry journalists claim this settlement will herald a dramatic new era of negotiation dynamics between agents and clients, this remains to be seen as we unpack the details of the settlement. 

Delving deeper: Understanding the impact of the settlement on the industry

Despite the appearance of resolution, the settlement has left a sour taste for many industry insiders, according to commentator Rob Hahn. Critics argue that the terms of the settlement, particularly NAR’s perceived concession, fall short of providing a clear victory.

Hahn suggests that NAR’s agreement, while seemingly substantial, exposes the organization to disproportionate liability compared to other defendants. With NAR bearing a significant portion of the damages and instituting extensive reforms, concerns linger regarding the long-term ramifications for the industry.

Furthermore, the settlement has notable exclusions.

First, it only covers over one million NAR members, state and local realtor organizations — the settlement specifically leaves out certain brokerages that continue to engage in litigation or have reached their own settlements, and it excludes non-NAR member MLSs as well as brokerages with transaction volumes exceeding $2 billion in 2022.

Second, the agreement doesn’t prohibit buyer agents from collecting fees and it doesn’t restrict where selling agents can advertise buyer agent fees. In other words, buyer agents can still receive compensation, and real estate agents can continue to advertise buyer agent compensation on various platforms, including non-NAR member websites like Zillow, OJO and Realtor.com. This aspect raises questions about whether the lawsuit will truly instigate significant changes.

Brokerage responses to the settlement

In the aftermath of the settlement, the real estate industry faces divergent responses to the ongoing legal saga. Some brokerages view the settlement as a means to mitigate legal risks and establish stability. Companies like Anywhere Real Estate and Re/Max have opted for compromise, settling lawsuits and agreeing to adapt business practices.

Conversely, a faction led by HomeServices of America remains steadfast in resisting the settlement, advocating for continued litigation and defending existing norms. Amid these opposing viewpoints, a group of reformers champion proactive measures to tackle industry challenges, aligning with the reforms outlined in the settlement.

The reforms advocated, however, would not be viewed as revolutionary to real estate agents in Canada. Rather, reforms such as requiring that buyer representation agreements (BRAs) are signed and that real estate agents no longer claim that “buyers don’t pay” for the agents’  services is standard practice in Canada. 

Anticipated changes in practice

Considering the settlement terms and existing practices in Canada, it remains uncertain what substantive changes might occur if a similar settlement were to arise in Canada. Agents in this country are already required to discuss compensation with clients, typically through BRAs. 

However, should sellers cease offering compensation to buyer agents en masse, agents would need to articulate their value to buyers, a requirement already present in Canadian BRAs. So, unless significant new brokerage models emerge in the U.S. that influence Canadian consumer habits and demand, the impact of such a settlement on Canadian real estate practices may be minimal.

As the dust settles on the NAR settlement, many claim that we’ll see profound changes. It’s my opinion that Canadian real estate agents and brokerages should take this claim with a truckload of salt, let alone a grain. Nonetheless, it’s prudent that brokerages and real estate agents adapt to evolving commission structures and negotiation norms, while also sharpening their ability to articulate their value to the consumer — something that we should already be doing.