Is It the End of the Realtor? Inside the NAR Crisis

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“Enough is enough,” said Redfin’s leadership team in a letter published earlier this month, addressing the actions of the National Association of Realtors (NAR), the largest trade organization in the nation.

Redfin will no longer support the NAR due to multiple sexual harassment allegations and gatekeeping policies seen as anticompetitive and contrary to Redfin’s mission. The brokerage will require many of its agents to leave NAR membership behind. 

The Redfin announcement came in the midst of two antitrust lawsuits against the NAR and several brokerage firms, which ultimately led giants Anywhere Real Estate and RE/MAX to reach settlement agreements that stipulate the brokerages will no longer require NAR membership for agents. Some analysts say Redfin’s decision to speak out may be the beginning of an ongoing battle that leads to a decline in NAR membership, and the two settlements collectively impact about 340,000 agents, who can now choose to leave the NAR. 

A Slew of Sexual Harassment Claims

NAR president Kenny Parcell resigned two days after The New York Times published a report detailing allegations of sexual harassment by Parcell and other NAR leaders. But before the information went public, the NAR did little to respond to complaints of harassment and discrimination, according to 29 people currently or formerly employed by the NAR. One former leader described a “culture of fear” within the organization. 

Indeed, 16 of the claims involved Parcell. He allegedly made crude gestures and sent inappropriate pictures. Multiple women accuse him of retaliation, a pattern in the organization that’s evident from The Times‘ investigation. Three women filed sexual harassment complaints formally and were later required to sign nondisclosure agreements in exchange for severance payments. Before his resignation, Parcell denied all allegations of sexual harassment. 

Recent guidance from the NAR regarding sexual harassment asked victims to manage inappropriate behavior rather than focusing on preventing the behavior to begin with. For example, the NARs human resources protocol stated, “Should a member, colleague, vendor, or other attendee refer to an employee as ‘sweetheart’ or ‘honey’, the employee may inform that individual that they would prefer they use the employee’s name.” 

The NAR stated: “We follow clear reporting procedures to investigate any issue of concern brought to our attention and take corrective action as needed, up to and including staff termination and member suspension.” 

Although Parcell eventually resigned, Redfin’s leadership team noted its dissatisfaction with the NAR’s approach since the organization waited until the public got wind of the allegations to properly address the issue. It was the straw that broke the camel’s back for Redfin. 

Decoupling NAR Membership and MLS Access

In June, even before The New York Times report brought attention to the sexual harassment allegations, Redfin resigned from the NAR board. The brokerage believes NAR policies aren’t consumer-friendly. 

For example, the NAR requires that sellers’ agents offer commission to buyers’ agents in listings, which may inflate commission rates in the U.S., some argue. According to Redfin, the organization also prohibits brokerage sites like Redfin from commingling MLS listings and non-MLS listings, meaning they can’t display for-sale-by-owner homes alongside agent-listed homes. 

At the end of the letter, Redfin’s leadership team asks the NAR to decouple access to the MLS from Realtor membership. In many markets, real estate agents are required to be association members in order to access the local MLS and other conveniences, like lockboxes and industry-standard contracts. 

However, these policies are set by individual MLSs, not the NAR. The organization eliminated the membership requirement to gain MLS access in 1994 after a Federal Circuit Court of Appeals held that it violated federal antitrust law. Since then, each MLS has been allowed to decide for itself whether nonmembers can access its database. Either choice is in compliance with NAR rules. 

Similarly, local MLSs make their own decisions about whether commingled listings are allowed, another optional NAR rule. And while the NAR requires that listing agents offer compensation to buyers’ agents, that offer could be as little as a penny. So far, the NAR has supported local MLSs that decided to eliminate the requirement altogether. 

The next step would be for the NAR to prohibit MLSs from maintaining the policies that many people see as anticompetitive. There was previously little to motivate the NAR to make such a significant change, but the recent bad publicity and Redfin’s departure from the organization could push it to consider a bolder statement. 

The Impact of Redfin’s Plans

Redfin acknowledges that it can’t pull agents from the NAR in about half of its markets, where MLS rules make it “impossible to be an agent” without NAR membership. Furthermore, Redfin only accounts for 0.8% of the market share in terms of units sold. But even if the direct impact may be minimal, some analysts think Redfin’s stance could impact other brokerages. 

But Redfin competitor Zillow plans to retain its NAR membership. And most brokerages that elect to make a change will likely make NAR membership optional, as Anywhere and RE/MAX did since most NAR members are independent contractors. In contrast, Redfin’s agents are employees, which makes it easier for the brokerage to dictate that they leave the NAR. 

That’ll leave it up to agents to decide if NAR membership is worth it, and that may be a difficult choice. Even in areas where MLS access isn’t restricted to members, association membership comes with other benefits, like insurance coverage and oversight of professional standards. It also provides career support, including training and networking opportunities. Many real estate agents see the value in membership, and forgoing it may not actually save them money since they’d still have to pay to access their local MLS database as a nonmember. 

That may be why local Realtor Association membership hasn’t declined much in areas where nonmembers are allowed to participate in the MLS, according to the NAR. Some MLSs lost only a handful of members after eliminating membership requirements. Local Realtor Association membership is required to gain NAR membership and its benefits. 

Four states restrict MLSs from requiring association membership for MLS participation: Alabama, California, Florida, and Georgia. These are not the states with the lowest average commission rates. There’s no indication that changing the rule nationwide would increase competition among real estate agents or decrease commission rates. And while some local MLSs have taken away the requirement for listing agents to offer buyers’ agent commissions, that hasn’t substantially impacted commission rates in the area. 

Related: How Do Realtors Get Paid?

Still, there’s no reason to maintain restrictions that burden real estate agents or create a worse experience for the consumer. That’s why some local MLSs have decided to lift the restrictions. 

Redfin’s move may not meaningfully change the calculus for real estate investors, at least not directly. But if more brokerages follow suit and NAR membership declines, the NAR may be forced to take longer strides toward consumer-friendly policies.

In addition, if enough agents leave the NAR, the industry could evolve to operate without its oversight. That could impact everything from the way we compensate agents to how we search for properties. It could also increase the feasibility of the for-sale-by-owner option. 

It may even be the end of the Realtor, but it won’t be the end of the real estate agent. Investor-friendly agents are invaluable, and they’ll always be in high demand. Their market knowledge and resources are often key to finding the right deal, especially for long-distance investors.

The Bottom Line

A major change is long overdue at the NAR regarding the organization’s internal response to sexual harassment claims. Some employees are already asking top executives to resign, and Redfin’s stance may play a role in initiating more accountability. 

The trade organization should consider other changes as well. Though the NAR has made many of its outdated policies optional for local MLSs, it may need to go a step further to reverse the effects. 

Meanwhile, local Realtor associations can consider decoupling MLS access and association membership, allowing the commingling of listings, and removing buyers’ agent commission requirements. These changes could allow technology and innovation to better serve the consumer.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.