NAR settlement: 'Far-reaching impact' beyond brokerages

The National Association of Realtors (NAR) settled a lawsuit in which a federal jury ruled the organization had conspired to artificially inflate commissions. The group agreed to pay $418 million in damages and amend several rules around commissions.

KBW Managing Director Ryan Tomasello joins Yahoo Finance to discuss the settlement and how it may affect other players in the housing market.

Tomasello explains that consumers will have the most to benefit from the settlement: "We think these changing enacted in the settlement, if it goes through, are gonna stand to reshape the housing market in the greatest fashion we've seen in over 50 years. Historically, consumers have lacked a lot of transparency around the process of how commissions are set and paid, particularly home buyers. We think that these changes ultimately bring a lot more knowledge to home buyers in their ability to negotiate and sign off on those commissions. At the end of the day, hopefully that reduces commissions in aggregate by as much as 30% or more, we've estimated."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: The National Association of Realtors settled landmark lawsuits, agreeing to pay $418 million in damages and amend several rules around commissions. The implications could be widespread not only for home buyers but also for the number of companies and businesses in the sector.

Let's bring in Ryan Tomasello who is the managing director and real estate technology analyst at KBW with Stifel company to discuss more here. Great to have you here with us. Who is the biggest beneficiary as the result of this settlement?

RYAN TOMASELLO: Thankfully, consumers, we think that these changes enacted in the settlement, if it goes through, are going to stand to reshape the housing market in the greatest fashion we've seen in over 50 years. Historically, consumers have lacked a lot of transparency around the process of how commissions are set and paid, particularly home-buyers. And we think that these changes ultimately bring a lot more knowledge to homebuyers in their ability to negotiate and sign off on those commissions. And then at the end of the day, hopefully, that reduces commissions in aggregate by as much as 30% or more, we've estimated.

SEANA SMITH: Ryan, to what extent is this going to reshape the housing market? And I ask that because we were talking to Jim Tobin, he was NAHB CEO earlier in the hour. He was talking about the impact that he sees, at least, it having for homebuilders here in the longer term. How do you see that ultimately potentially boosting activity here over the next several months or once it goes into effect in the summer?

RYAN TOMASELLO: Well, the plumbing of the housing market is certainly complex. And there's a lot of different stakeholders, whether it be homebuilders, as you point out, mortgage companies, title companies, maybe the more obvious players like the residential brokerages, and even the real estate portals that help consumers shop for homes. And we think that this ultimately stands to impact all of those stakeholders.

Our focus has predominantly been on the impact to the traditional brokerage model and how that might need to evolve to adapt to these new rules and ultimately support buyers in this new type of structure that brings them more transparency and hopefully more options in the types of services that they can ultimately use in the home search process.

Now, for brokerages, that might entail a smaller commission pool for which they're competing around, and so that can certainly cause some disruption. And then perhaps just as interestingly real estate portals that have historically relied more on the buy side piece of this commission pool for their revenue models, companies like Zillow, Realtor.com, may need to reconsider their focus in the role that they play in the housing market and potentially shift that focus more to the sell side in terms of advertising homes.

For homebuilders, as you point out, the question becomes if this overall reduction in friction costs around one of life's biggest transactions ultimately incentivizes more housing turnover, improves affordability. And certainly, at the margin, we think that's true, but that will take time. And ultimately, we think, overall, macro supply and demand dynamics are going to play a bigger role for those types of players. But it certainly shows you that this has a much far reaching impact than just the traditional broker players in this landscape.