Categories Real estate

What is the future of the Realtor? Inside the NAR Crisis

In a letter , published earlier in this month by Redfin’s leadership team, the company said: “Enough is Enough.” The letter addressed the actions of NAR (National Association of Realtors), the country’s largest trade association.

Redfin has decided to stop supporting the NAR because of multiple allegations of sexual harassment and policies that are seen as anticompetitive. They also go against Redfin’s mission. Many of the brokerage’s agents will be required to drop their NAR membership.

Redfin’s announcement was made in the middle of two antitrust suits against the NAR, and brokerage firms. These lawsuits led to giants Anywhere Real Estate (RE/MAX) and RE/MAX reaching settlement agreements that stipulated the brokerages would no longer require NAR agents membership. Analysts say that Redfin’s decision may be a beginning of a battle which will lead to fewer NAR members. The two settlements affect about 340,000 agents who now have the option to leave the NAR.

A Slew of Sexual Harassment Claim

NAR President Kenny Parcell announced his resignation two days after The New York Times reported allegations of sexual misconduct by Parcell and NAR leaders. According to 29 current or former NAR employees, the NAR responded little to complaints about harassment and discrimination before the report was published. Former leader of the NAR described a “culture” of fear within the organization.

Parcell was involved in 16 of these claims. He sent crude pictures and made crude gestures, according to the allegations. The Times’ investigation revealed that he was accused of retaliation by multiple women. Three women made formal complaints of sexual harassment and were then required to sign nondisclosure contracts in exchange for severance payment. Parcell denied any allegations of sexual misconduct before he resigned.

The NAR has recently issued guidance on sexual harassment that encourages victims to focus more on managing inappropriate behavior than preventing it. The NAR’s protocol on human resources stated that “If a member or colleague refers to an employee by their name, they should inform them that they prefer that they call the employee by his or her own name.”

According to the NAR, “We follow a clear reporting procedure to investigate any concern that is brought to our attention. We take corrective actions as necessary up to and including termination of staff and suspension of members.”

Redfin’s management team expressed its dissatisfaction at the NAR’s handling of the situation, even though Parcell eventually resigned. The organization had waited for the public to become aware of the allegations before addressing the matter. Redfin’s leadership team was upset with the NAR’s approach. The organization waited until the public learned of the allegations before addressing the issue.

Decoupling the NAR membership and MLS access

Redfin quit the NAR Board in June, before The New York Times reported on the allegations of sexual harassment. The brokerage feels that NAR’s policies are not consumer-friendly.

Some argue that the NAR mandates that agents must offer a commission to agents who represent buyers in their listings. This could lead to an increase in commission rates for agents in the U.S. Redfin says that the organization prohibits brokerage websites like Redfin to mix MLS and non-MLS listing, which means they cannot display homes for sale by owner alongside agents-listed homes.

Redfin’s leadership team requests that the NAR decouple the access to the MLS and Realtor membership at the end of their letter. In many markets real estate agents must be members of an association to have access to the local MLS, as well as other benefits, such lockboxes and standard contracts.

These policies are determined by the individual MLSs and not by NAR. In 1994, the organization removed the requirement of membership to access MLSs after a Federal Circuit Court of Appeals ruled that it was in violation of federal antitrust laws. Since then, every MLS is allowed to decide whether or not non-members are allowed access to its database. Both options are in compliance with NAR regulations.

Similarly, local MLSs decide whether commingled listing are allowed. This is another optional NAR rule. While the NAR mandates that listing agents compensate buyers’ agents for their services, this compensation could be as low as one penny. The NAR has so far supported local MLSs who have decided to remove the requirement.

Next, the NAR would prohibit MLSs to continue with policies that are seen by many as anticompetitive. The NAR had little motivation to make a major change before, but recent bad press and Redfin leaving the organization may have pushed it to take a more bold stance.

Redfin’s plans and their impact on

Redfin admits it cannot pull agents away from the NAR, as MLS rules in half of their markets make it “impossible” to be an agent without NAR membership. Redfin has a 0.8% share of the market in terms of sales. Even if it is a minimal impact, some analysts believe that Redfin’s stance may impact other brokerages.

Zillow, a competitor of Redfin, plans to keep its NAR membership. Most brokerages will make NAR membership an optional option, like Anywhere and RE/MAX. This is because most NAR members work as independent contractors. Redfin agents, on the other hand, are employees. This makes it easier for Redfin to tell them they must leave the NAR.

It’s up to the agents to decide whether NAR membership is worthwhile. This may be a tough decision. Even if MLS access to the area is not restricted, membership in an association comes with many other benefits. These include insurance coverage, oversight of standards, and professional standards. The association also offers career support including networking and training opportunities. It is important to note that many real estate agents value membership and if they don’t, it won’t save them any money as they would still be required to pay for access to their local MLS database.

According to the NAR, this may explain why the membership of local Realtor Associations hasn’t decreased much in areas that allow nonmembers to participate in MLS. After eliminating the membership requirement, some MLSs only lost a few members. To gain NAR membership, you must be a member of the local Realtor Association.

Alabama, California Florida and Georgia are the four states that do not require association membership to participate in MLSs. The states that have the lowest average commission rate are not these four. It’s not clear that changing the rule nationally would increase real estate agent competition or lower commission rates. While some local MLSs no longer require listing agents to pay buyers’ agent fees, this has not had a significant impact on commission rates.

How do Realtors get paid?

There’s still no reason to continue restrictions that burden agents or make the experience of consumers worse. Some local MLSs decided to remove the restrictions.

Redfin’s decision may not have a significant impact on real estate investors. At least, not directly. If more brokerages do the same and NAR membership drops, then NAR might be forced to make greater strides in consumer-friendly policy.

If enough agents leave NAR, it could also evolve so that the industry operates without its oversight. This could have a huge impact on everything, from how we pay agents to the way we search for property. This could increase the possibility of a for-sale by owner option.

Real estate agents will continue to be in demand, even if the Realtors are no longer around. Agents who are investor-friendly will always be in demand. Their knowledge of the market and their resources can be crucial to finding the best deal, particularly for investors who are far away.

The Bottom Line

The NAR has been long overdue in making a major change to its internal response to allegations of sexual harassment. Redfin may be able to help increase accountability by allowing some employees to ask top executives for resignation.

The trade association should also consider other changes. The NAR may have to do more to reverse its effects, even though it has made some of its outdated policies available to local MLSs.

Local Realtor associations may also consider decoupling MLS membership from MLS access, allowing listings to be mixed together, and removing the requirement for buyers’ agents to receive a commission. These changes may allow technology and innovation better serve consumers.

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