How the Post-NAR Settlement Landscape Will Shape the New Home Market

The real estate market is settling into its new normal following major changes due to the National Association of Realtors (NAR) lawsuit settlement and the new home market stands to benefit from the new operating environment.

On Aug.17, new rules governing commissions and buyer representation agreements went into effect nationwide. The long-term impacts of these changes are still yet to play out, though Karyn Bonder, vice president of business development for New Home Source, says one possible outcome will be a positive for the new home market.

“We expect new home sales to see an uptick because most builders have a process in place to pay their buyer’s commission as long as the broker meets the builder’s requirements for compensation, which usually includes the broker being the procuring cause and bringing the customer in on the first visit,” Bonder says.

Effective Aug. 17, buyers must now enter into a contract with an agent before that agent can show them any properties. While this rule was already in effect in some states, it is now required of all agents who are members of the NAR. Additionally, NAR members are no longer allowed to advertise commission for the buyer’s broker in an MLS. While sellers and agents can still offer to pay a buyer’s agent’s fee, that must now happen through outside negotiations. Both developments represent a significant change to business in the resale market and Realtors may begin to see the new home market as a favorable alternative.

“Once Realtors know they can bypass that awkward conversation of who is going to pay me [it will lead to a spike in new construction sales]. Because it is understood that the builder will [pay the Realtor] if you bring the customer on their first visit,” Bonder says. “We think that once agents really know that and the word spreads, the easy route is going to be taking consumers to new construction.”

Prior to the new rules going into effect, many builders, including D.R. Horton, Meritage Homes, and The New Home Co., publicly leaned into Realtor relationships. D.R. Horton—which revealed in a LinkedIn post that it paid out almost $1 billion in two years to agents—reiterated in April that it will continue to work closely with the brokerage community post NAR-settlement. The builder said it will continue to work closely with the brokerage community “regardless of what direction this [settlement] takes” while also focusing on its digital presence to continue to reach customers “through whatever form it takes over the next couple years.”

For Meritage Homes, working more closely with Realtors is at the heart of the builder’s strategic shift. As part of the move, the home builder is offering marketing and partnership benefits to key Realtor partners, including pocket listings, referrals, and open house opportunities.

“We know and embrace that Realtors are a trusted resource for potential customers, particularly first-time buyers,” Meritage Homes CEO Phillippe Lord told BUILDER in August prior to the new rules going into effect. “We are leaning into our Realtor relationship and can see a scenario where we are close to 100% co-broker participation, paying local market-rate commissions.”

The New Home Co. showed its support for real estate agents by launching the New Home Co. Broker Collective, which offers “clear, consistent, and higher commissions” at varying levels in all markets. The program also provides early payouts to ensure broker partners are paid a portion of commission at the point their client signs a contract, with additional payment prior to closing.

While there is also opportunity for builders to explore ways to sell directly to customers without real estate agents, many are employing a wait-and-see approach, maintaining similar operating practices to prior to the NAR settlement.

Kevin Oakley, managing partner of Do You Convert, says many builders he expected to be “more aggressive post-settlement” have maintained the status quo given current market conditions.

“It is a tale as old as time: When the market is soft, builders overvalue Realtor participation and when times are good, they under value [Realtor participation],” Oakley says. “My core recommendation [to builders] is still the same: Determine a truly fair commission compensation program (or flat fee) and let that be your guide.”

Oakley says a “small number” of builders are offering an incentive directly to the buyer and allowing the buyer to choose if the incentive is allocated toward their agent, upgrades, discounts, or rate buydowns.

“I do think this will over time become a larger trend as customers have asked for decades ‘If I don’t have a Realtor, can I get a discount’?” Oakley says.

“If I was a builder, I would have two programs: One for the top 20 to 30 teams and agents and a lower tier program for everyone else, unless they went through a certification and training program about my builder,” Oakley continues.

In addition to limited resale inventory, homeowners reluctant to sell, and high mortgage rates, the flexibility of home builders to cultivate beneficial relationships with Realtors and interact with buyers without agents is another tailwind for the new-home market. Bonder says new construction remains a solution for any prospective buyer looking for a home due to competitive advantages over the resale market. She says there is an opportunity for builders to promote their unique position to help buyers with or without an agent purchase a home.

“If the Realtor is [the] procuring cause, the chances are the builder is going to work with them in a very meaningful and transaction-friendly way to get their commission,” Bonder says. “But consumers that don’t have a Realtor will be taken care of as well. It’s definitely a win-win for new construction.”

Moving forward, a Realtor’s conversation with prospective buyers about their value will likely be an important element to track in the new operating environment. While many Realtors have made it standard practice to have buyers sign agreements to demonstrate their value proposition, Bonder says many others will begin having these “awkward conversations” for the first time.

“Compare those conversations to the conversations that are brought in with the new construction transaction. I think it would be easier to have that conversation with the builder’s agent as opposed to the seller,” Bonder says. “What to watch and what to monitor [in the coming months] is the sentiment and conversations around the value proposition of new construction versus resale.”

Keep the conversation going—sign up to our newsletter for exclusive content and updates. Sign up for free.