Navigating The NAR Lawsuit Changes: How Smaller Brokerages Can Stay Ahead

Typically, buyer’s and seller’s real estate agents negotiate a commission rate, often around 6% of the home sales price, which they split.

The average price of a home is $495,100, meaning buyer’s agents make around $14,853 in commission.

But this is all about to change.

In 2019, home sellers started a lawsuit against the National Association of REALTORS® (NAR). It’s part of a series of legal actions challenging traditional real estate commission practices.

The lawsuit claimed that the NAR and some large real estate companies have been keeping commission rates unfairly high, making buying and selling homes more expensive.

In March 2024, the U.S. District Court for the Western District of Missouri approved the NAR’s proposed settlement agreement. The NAR settlement is still subject to final court approval, but it will mean big changes for small brokerages.

Commission structures will change, competition will increase, and brokers may have to rethink how they attract and retain top talent.

In this article, we’ll guide you through the details of the NAR lawsuit so you can understand how it could impact your brokerage. We’ll also provide some practical tips on how small brokerages can adapt to the big changes that lie ahead.

The NAR Lawsuit Explained

To understand how it may impact your small brokerage, it’s critical that you first know the details of the lawsuit.

A background of the lawsuit

The NAR is the largest organization that represents agents and brokers across the United States. There are currently over 1.5 million NAR members. 

For many years, there have been ongoing concerns about the structure of real estate commissions, particularly how buyer’s agents get paid.

The lawsuit claimed that NAR and some major real estate firms conspired to keep commission rates high. The lawsuit argued that home sellers are forced to pay commission fees to the buyer’s agents, which inflates the overall cost of selling a home. 

The home sellers involved in the lawsuit (the plaintiffs) said that this practice is unfair and anti-competitive.

Typically, home sellers pay both the buyer’s and seller’s agent commission, which is a percentage of the home’s sale price. 

The allegation is that the NAR worked to maintain high commission rates. This prevents alternative, lower-cost models.

The settlement

The lawsuit was settled for $418 million, addressing the claims related to broker compensation. 

The judge who presided over the lawsuit has granted preliminary approval to the proposed settlement.

The settlement resolves:

• The claims against NAR.
• Claims against over one million NAR members.
• Brokerages with an NAR member principal whose residential transaction volume in 2022 was $2 billion or less.

The NAR will pay the settlement in installments, starting with a $197 million payment due within 90 days of the preliminary settlement approval process. This payment will initiate a series of additional payments over the next few years.

Rule changes

One major change that the lawsuit will result in is the elimination of offers of compensation through the multiple listing service (MLS). 

Instead, buyers’ agents must now negotiate their fees directly with their clients. They must do this through other means, such as seller concessions.

MLS changes

The new regulations will mandate buyer agency agreements and require all MLS platforms to update and remove fields related to broker compensation. These changes are expected to be implemented by July 2024. 

Exclusions

The settlement doesn’t include the largest real estate brokerages, such as eXp Realty, Compass, Howard Hanna Real Estate, and Redfin​.

What to expect

The lawsuit has challenged long-standing practices in the real estate industry.

The changes from this lawsuit could make buying and selling homes more affordable and transparent. 

We’re sure to see significant changes in the handling of commissions in real estate.

How the Lawsuit Will Impact Small Brokerages

Smaller real estate brokerages will undoubtedly experience the impact of the lawsuit as commissions decrease.

Here are some ways we believe the NAR lawsuit may impact small brokerages:

Financial impact

The lawsuit has led to a change in how commissions will be structured. This may mean that small brokerages will see reduced income from commission splits.

Currently, brokers typically earn a percentage of their agents’ commissions, which could be affected if commissions decrease.

With new commission models emerging, such as flat fees, traditional brokerages might face more competition from real estate businesses that are using more innovative, lower-cost alternatives. 

Operational adjustments

Small brokerages may need to adjust their business model to adapt to new commission structures. We’ll explain this in more detail later in this article.

This could involve offering more flexible pricing, different types of services, or focusing on volume over higher per-transaction fees.

Legal and compliance considerations

Real estate businesses may face increased scrutiny from regulators and might need to be more transparent in their dealings to avoid legal issues. 

This means internal policies may need to be updated to comply with any new regulations or industry standards resulting from the lawsuit.

Market dynamics 

Your brokerage will need to adapt quickly to the new real estate landscape to capture more market share. 

Small brokerages that are slow to adapt might struggle to maintain their market share.

Brokerages will need to manage their clients’ perceptions and focus on building trust with them, especially if the lawsuit results in negative attention to traditional real estate practices.

Cost management

Small brokerages may need to find ways to reduce operating costs to ensure profitability in what could be a lower commission environment.

For example, investing in technology to streamline operations and offer better service to clients at lower costs is more critical than ever.

Agent relationships

You may need to rethink how you attract and retain top real estate agents. Offering competitive compensation structures, professional development opportunities, and support will become very important.

Practical Tips for Small Brokerages to Adapt to Industry Changes

💡 Revise your business model

To attract a wider range of clients, you might want to introduce adjusted commission options for your agents.

Consider these types of commission splits to remain competitive and attractive to both agents and clients:

💵 Traditional split

This is a percentage-based split where the commission is divided between the brokerage and the agent. Common splits include 50/50, 60/40, or 70/30, where the first number represents the agent’s share and the second the brokerage’s share.

In light of the lawsuit’s changes, you may want to consider adjusting the split to be more favorable to agents to attract top talent. 

This is especially true if overall commissions are expected to decrease.

💵 Sliding scale split

The sliding scale commission split starts lower for the agent and increases as they generate more revenue for your brokerage. For example, an agent might start with a 50/50 split, which increases to 70/30 once they hit a certain threshold.

This incentivizes agents to increase their productivity and rewards high performers. This can help your brokerage maintain profitability in the current landscape while motivating agents.

💵 Flat fee

In this split, agents pay a flat fee to your brokerage per transaction, or a monthly desk fee. They keep the rest of the commission.

This model offers transparency and predictability in costs, which can appeal to agents. It can also help you attract agents who are confident in their ability to close more deals.

💵 Tiered split

This commission split varies depending on the level of service provided by your brokerage. It involves higher splits for full-service brokerage support and lower splits for limited services.

You should consider offering various service levels to cater to different agent needs and preferences. This provides flexibility and cost-efficiency. 

➡️ Learn More about Commission Splits Check out our handy real estate commission split calculator to help you determine splits for your agents. It will help you choose which structure would work best for your brokerage as the industry changes.

💡 Enhance your services

You can create service packages that bundle certain aspects of the home-buying and selling process. 

These could include staging, marketing, and legal assistance. This helps you provide your clients with comprehensive support during their buying or selling journey.

Additionally, you might want to develop niche experience in specific areas to differentiate your business from competitors. Some niche experiences could include:

• Luxury homes.
• First-time buyers.
• Investment properties.

💡 Educate your clients

Many of your clients may not be aware of the changes brought about by the lawsuit. You need to educate them about how the changes will affect them.

You may need to adapt your client onboarding process and materials to explain the changes and what clients can expect when buying or selling property going forward.

Educating your clients will help you build trust with them. They’ll appreciate your honesty and transparency. It shows them that your brokerage is proactive and has their best interests in mind.

Clear communication about how the changes might impact real estate transactions reassures your clients that your business is knowledgeable and prepared to navigate the evolving landscape.

💡 Leverage the right technology

Use technology to your advantage by automating routine tasks such as paperwork, transaction management, and marketing. This can all save you time to focus on bigger tasks and reduce operational costs.

The right technology can help you achieve seamless communication with your clients, document management, and real estate transaction tracking to enhance the client experience.

🚀 Pro Tip: Invest In Transaction Management Software Using affordable transaction management software like Paperless Pipeline can help you adapt to the changes that lie ahead. Our tool simplifies your entire transaction management process, and we help you communicate effectively with your clients.

💡 Invest in training

You’ll need to regularly train your agents on market trends, technologies, and best practices for working with clients.

Train agents to be adaptable and innovative in their approach, which should help them prepare to handle changes in the market and varying client expectations.

💡 Focus on marketing your brokerage

There’s never been a more important time to market your small brokerage effectively. It’s the best way to attract clients and grow your business at a time when things are uncertain.

Strengthen your online presence by focusing on social media marketing, search engine optimization (SEO), and content marketing to attract and engage with potential clients. 

➡️ Getting Started with Digital Marketing We’ve put together some helpful guides to navigate the world of digital marketing for your small brokerage: 💡 For general marketing advice, you can check out our guide on marketing strategies for real estate brokerages. 💡 Read our guide on generating leads to learn more about social media marketing. 💡 Take a look at our article about real estate marketing tools to find out more about SEO.

Now is also a good time to speak to past clients and ask them for testimonials and reviews for the service you provided them. 

You can use these as content for your marketing channels to help build trust and generate more leads. This is known as social proof.

You can also market your brokerage by becoming involved in your local community. This can be done through events, sponsorships, and partnerships to increase your brand’s visibility. 

Attending networking events is also an excellent way to attract new potential clients and increase your sphere of influence.

💡 Improve client relationships

To build trust and loyalty with your clients, you must maintain open and transparent communication throughout the buying and selling process. 

If you offer an excellent home-buying experience, your clients are likely to come to you again when they want to buy or sell a home. This drives repeat business for your brokerage.

Providing personalized service can enhance client relationships. This means understanding their unique needs and preferences, which can help you make them feel valued and understood.

Another tip is to provide ongoing support to your clients even after the transaction has been completed. 

For example, you could give them advice on home maintenance and market updates and invite them to client appreciation events.

Offering your clients a gift after closing a deal is also a great way to ensure a lasting impression and maintain your relationship with them. 

Check out our ideas for real estate closing gifts to find some great options to give to your clients.

💡 Explore partnerships

You may want to consider forming partnerships with mortgage brokers, home inspectors, moving companies, and other related services. 

This helps you provide your clients with a one-stop solution for their needs, enhancing the value you can provide them with.

Additionally, building strong referral networks with other professionals in the real estate industry can help generate more leads for your business.

💡 Stay informed and compliant

It’s important to stay informed about any regulatory changes in the real estate industry that might result from the lawsuit. This will help you ensure compliance and avoid legal issues, which can be very costly to your business.

🚀 Pro Tip: Stay Compliant with Paperless Pipeline Paperless Pipeline helps you stay compliant by providing you with an audit trail.  You’ll also be able to give each person on your real estate team access to the right information and nothing else. Plus, you’ll get free unlimited monthly digital backups regardless of the plan you choose with us, so you’re always audit-ready.

💡 Optimize cost management

Now is the right time to audit all your operational expenses to identify areas where costs can be reduced in light of changes to commissions. 

This could include subscriptions to real estate software, renting office space, and any other facilities you offer to your agents.

You may want to consider renegotiating contracts with vendors and service providers to get better rates or find more cost-effective alternatives.

Adopt lean management practices to eliminate wasted time and resources. Doing this can improve your efficiency and operations. This could include optimizing workflows to reduce unnecessary steps in your processes.

With Paperless Pipeline, your workflows are automated to streamline each step of the transaction management process. Using our software means you’ll meet every milestone and critical due date without any extra, unnecessary steps or admin.

Another way to save on operational costs is to use virtual tours and staging to reduce resources spent on physical staging and frequent showings. This also appeals to tech-savvy buyers and sellers.

💡 Leverage your local market knowledge

As a small brokerage, you likely know your local area far better than a larger real estate business would. You can use this to your advantage.

You can provide your clients with valuable insights based on your deep knowledge of the local market, helping you stand out from larger competitors.

Let Paperless Pipeline Help You Adapt to Industry Changes

There’s no doubt that small brokerages will face some big changes due to the NAR lawsuit. 

Although the financial and operational implications are huge, with the right tools in place, you can adapt and thrive in this transforming landscape.

Paperless Pipeline is purpose-built software designed to help brokerages like yours streamline their operations. We’re the fastest and most affordable solution to help you simplify your entire transaction management process.

Simplifying your transaction management process means you’ll never miss a critical due date, your deals stay on track, and nothing falls through the cracks.

Better yet, you can get a free 14-day Paperless Pipeline trial without having to give us any credit card information. Try Paperless Pipeline for free today.

Ready to simplify your process and delight your agents?

In less than a minute you can start testing the newest features built to help your entire office close more deals. It’s simple, powerful, and 100% free to try without a credit card.

Try it free →