Although the National Association of Realtors (NAR) settlement may not directly impact mortgage professionals, experts from Mitchell Sandler’s mortgage regulatory group say the impact on housing transactions will be “drastic” and “undoubtedly” lead to challenges and opportunities affecting both realtors and lenders.
Effective August 17, 2024, NAR reached a settlement in a class action lawsuit that resulted in changes to buyer-broker fees in real estate transactions. The law firms’, Cohen Milstein, Hagens Berman Sobol Shapiro LLP, and Susman Godfrey LLP, investigation showed that NAR’s cooperative compensation rules and other rules restricting the negotiation of commissions incentivized buyers’ agents to steer clients toward homes with higher commissions and resulted in home sellers paying inflated buyer-broker fees.
The briefing, led by two partners of Mitchell Sandler, Head of Mortgage Regulatory Practice Daniella Casseres and Head of Litigation, Labor and Employment Ari Karen, focused on the settlement's effect on mortgage lenders.
“I think there will be a lot of unintended consequences,” Karen said. “This was not a legislature getting together and deciding this is the way we think it's best for everyone. This was a lawyer and another lawyer and their clients saying, ‘what's good for me and my client?’”
Karen went on to explain how seller real estate agents have always been in control of the transaction to some extent, but that will become even more true in the aftermath of the settlement. “At the end of the day, the seller agents are going to control how people are paid,” he said.
Casseres asked the question on everyone’s mind: “So what's the practical impact on lenders?”
Knowing a lot of independent mortgage lenders have relied on buyers' agents as a referral source, Casseres discussed the potential for lenders to set up arrangements with sellers' agents, then offer incentives directly to the consumers to use their sellers' agents.
“Similar to a builder-lender, closing cost arrangement, where there's a preferred lender that works with a particular builder, and you get like $2,000 off of closing costs,” Casseres explained.
The immediate response from Mitchell Sandler’s mortgage lender clients was an influx of questions about whether or not they can employ real estate agents as loan officers or in other capacities at their mortgage companies.
“Obviously buyers' agents are concerned about their commission and their livelihood going forward,” Casseres said. “Lenders are equally concerned about how they're going to get deeper in with referral sources. So the whole dual employment real estate agent-loan officer model has become a lot more prevalent, I would say.”
Alternatively, Casseres theorized, another way to pay real estate agents would be through a marketing services agreement, although she said it comes with a host of compliance-related issues.
“This is a time when mortgage lenders should really be thinking outside the box to build their networks and put themselves in a good position,” she added.
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VA Loans & Borrowers
Industry expert Rob Chrisman wrote on his blog, Chrisman Commentary, that originators specializing in VA loans have been particularly concerned about how any commissions procedure changes could affect veterans and servicemembers using the VA’s home loan benefits.
"Per the VA, the settlement will require two big changes in how buyers and sellers negotiate services from a buyer’s agent. First, when agents list homes on the MLS platform, they will no longer be able to include the buyer’s agent’s compensation,” Chrisman wrote. “Second, buyers will be required to enter into written agreements with Realtors before touring a home, and the agreement must include terms about their own agent’s fee.”
As of August 10, 2024, eligible Veterans, active-duty service members, and surviving spouses who use their VA home loan benefits can pay for certain real estate buyer-broker fees when purchasing a home.
