National Association of Realtors® Proposes to Settle Commission Lawsuits Nationally
By: Trey Van Dyke
March 18, 2024
On March 15, 2024, the NAR broke the news that it had reached an agreement with the class-action plaintiffs in the Sitzer-Burnett anti-trust commission lawsuit. This is the lawsuit in which NAR and the remaining defendants had lost at trial in October 2023 and the jury returned a verdict for ~$1.8 billion in damages (that could have subsequently tripled if District Judge Hon. Stephen Bough awarded treble damages). Under the agreement, NAR will pay $418 million over a four-year period.
This first question our real estate brokerage/agent clients are wondering is who does this cover? The agreement provides quite an umbrella of liability releases for: NAR itself, NAR members individually, all state and local associations affiliated with NAR, all association-owned Multiple Listing Services (MLSs), and certain brokerages. Brokerages covered include those with an NAR member as its principal, whose residential transaction volume in 2022 was $2 billion or below, except for: HomeServices of America who is still litigating Sitzer-Burnett; and other corporate defendants (and their employees) still litigating other class-action anti-trust commission lawsuits.
So, what happens to the MLSs not wholly owned by their local association, and the remaining defendants that were carved-out of this umbrella release? Apparently, the agreement provides “a mechanism for those MLSs to obtain releases efficiently if they choose to use it …[which] includes opting into the MLS practice changes that are a part of the agreement and paying a per-subscriber fee to the Settlement Fund.”
Okay, so what are the practice changes that are going to be a part of this? First, NAR will put in place a new rule that prohibits offers of compensation to the buyer’s agent on the MLS. This means they cannot be listed as an advertised attribute on a listing, but sellers may continue to make offers of compensation to a buyer’s agent off the MLS in negotiations, or as a concession to buyers. Second, effective mid-July 2024, some type of written buyer representation agreement (i.e. the CAR Buyer Representation and Broker Compensation Agreement or BRBC) will be required for MLS participants before touring a home with a client.
How are buyer’s agents going to get paid now? To be clear, the settlement agreement still allows offers of compensation to buyer’s agents… just not on the MLS any longer. Compensation would continue to be negotiable and should always be negotiated between agents and buyers. The types of compensation available for buyer’s agents would continue to take multiple forms, depending on agent-buyer negotiations, including but not limited to a fixed-fee commission paid directly by buyers; negotiated concessions from the seller either as a part of the original offer or in exchange for a buyer’s release or waiver of some contractual right (i.e. contingency); or as a negotiated portion of the listing agent’s compensation.
How does this change practices for listing agents? Listing agents should inform their clients that offers of compensation would no longer be an option to advertise on the MLS. However, the changes do not prevent offers of cooperative compensation off MLS, nor prevent sellers from offering buyer concessions on an MLS. Listing agents should discuss options available to sellers in their listing presentations, and the costs and potential benefits of different types of compensation offers/negotiations … including the option to offer none at all. Listing agents should be cautious about “steering” sellers into offering “customary” compensation offers, despite the rule change removing advertised offers from the MLS. This was an allegation (whether or not it is accurate) in several of the commission lawsuits. Agents should inquire with their brokers about strategies for dealing with these new rules in their listing presentations.
Our take. Fortunately for California Realtors®, the CAR already has tools in place to help with this transition. CAR has previously drafted the BRBC in such a way that, if used properly and extensively, could pave the way for a solution. In the BRBC, buyers can agree to compensate their agents for their services for a flat-fee or a percentage of the purchase price (let’s just say, only for example: 2.5%). The BRBC also includes an option for the buyer and agent to agree that the fee owed may be paid by a third party (let’s just say only for example: a seller). A buyer who has this obligation to pay their own agent may want to, as a part of their offer negotiations, include in the terms that their own agent be compensated (let’s just say only for example 2.5%). If this becomes common practice, it may incentivize buyers to request homes that offer such a compensation, and inquiries are not prohibited… only advertising offers on the MLS listing are. That practice, in turn, may incentivize sellers to include such offers in their listing agreements, and encourage their agents to let inquiring buyer’s agents know. In this scenario, there’s no massive changes except the commissions become negotiated in the offers, and the agents begin those negotiations for their principals in the inquiry stage.
What happens to all these lawsuits now? Well, the Judicial Panel on Multidistrict Litigation is working to assemble all the class action commission lawsuits from different federal districts to consolidate into one common ruling. (See https://www.jpml.uscourts.gov/about-panel) Since the NAR settlement is so wide-ranging and nearly-all-encompassing, it puts in place a set of arrangements that may be solidified by the MDL Panel across the country. While the NAR settlement (once approved) essentially puts to bed many of the lawsuits with parties that are covered by it (associations, MLS, some brokerages), a ruling with the MDL Panel would likely end the copy-cat commission lawsuits once and for all (at least the ones with the same parties and the same arguments!).
The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
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By: Trey Van Dyke
March 18, 2024
On March 15, 2024, the NAR broke the news that it had reached an agreement with the class-action plaintiffs in the Sitzer-Burnett anti-trust commission lawsuit. This is the lawsuit in which NAR and the remaining defendants had lost at trial in October 2023 and the jury returned a verdict for ~$1.8 billion in damages (that could have subsequently tripled if District Judge Hon. Stephen Bough awarded treble damages). Under the agreement, NAR will pay $418 million over a four-year period.
This first question our real estate brokerage/agent clients are wondering is who does this cover? The agreement provides quite an umbrella of liability releases for: NAR itself, NAR members individually, all state and local associations affiliated with NAR, all association-owned Multiple Listing Services (MLSs), and certain brokerages. Brokerages covered include those with an NAR member as its principal, whose residential transaction volume in 2022 was $2 billion or below, except for: HomeServices of America who is still litigating Sitzer-Burnett; and other corporate defendants (and their employees) still litigating other class-action anti-trust commission lawsuits.
So, what happens to the MLSs not wholly owned by their local association, and the remaining defendants that were carved-out of this umbrella release? Apparently, the agreement provides “a mechanism for those MLSs to obtain releases efficiently if they choose to use it …[which] includes opting into the MLS practice changes that are a part of the agreement and paying a per-subscriber fee to the Settlement Fund.”
Okay, so what are the practice changes that are going to be a part of this? First, NAR will put in place a new rule that prohibits offers of compensation to the buyer’s agent on the MLS. This means they cannot be listed as an advertised attribute on a listing, but sellers may continue to make offers of compensation to a buyer’s agent off the MLS in negotiations, or as a concession to buyers. Second, effective mid-July 2024, some type of written buyer representation agreement (i.e. the CAR Buyer Representation and Broker Compensation Agreement or BRBC) will be required for MLS participants before touring a home with a client.
How are buyer’s agents going to get paid now? To be clear, the settlement agreement still allows offers of compensation to buyer’s agents… just not on the MLS any longer. Compensation would continue to be negotiable and should always be negotiated between agents and buyers. The types of compensation available for buyer’s agents would continue to take multiple forms, depending on agent-buyer negotiations, including but not limited to a fixed-fee commission paid directly by buyers; negotiated concessions from the seller either as a part of the original offer or in exchange for a buyer’s release or waiver of some contractual right (i.e. contingency); or as a negotiated portion of the listing agent’s compensation.
How does this change practices for listing agents? Listing agents should inform their clients that offers of compensation would no longer be an option to advertise on the MLS. However, the changes do not prevent offers of cooperative compensation off MLS, nor prevent sellers from offering buyer concessions on an MLS. Listing agents should discuss options available to sellers in their listing presentations, and the costs and potential benefits of different types of compensation offers/negotiations … including the option to offer none at all. Listing agents should be cautious about “steering” sellers into offering “customary” compensation offers, despite the rule change removing advertised offers from the MLS. This was an allegation (whether or not it is accurate) in several of the commission lawsuits. Agents should inquire with their brokers about strategies for dealing with these new rules in their listing presentations.
Our take. Fortunately for California Realtors®, the CAR already has tools in place to help with this transition. CAR has previously drafted the BRBC in such a way that, if used properly and extensively, could pave the way for a solution. In the BRBC, buyers can agree to compensate their agents for their services for a flat-fee or a percentage of the purchase price (let’s just say, only for example: 2.5%). The BRBC also includes an option for the buyer and agent to agree that the fee owed may be paid by a third party (let’s just say only for example: a seller). A buyer who has this obligation to pay their own agent may want to, as a part of their offer negotiations, include in the terms that their own agent be compensated (let’s just say only for example 2.5%). If this becomes common practice, it may incentivize buyers to request homes that offer such a compensation, and inquiries are not prohibited… only advertising offers on the MLS listing are. That practice, in turn, may incentivize sellers to include such offers in their listing agreements, and encourage their agents to let inquiring buyer’s agents know. In this scenario, there’s no massive changes except the commissions become negotiated in the offers, and the agents begin those negotiations for their principals in the inquiry stage.
What happens to all these lawsuits now? Well, the Judicial Panel on Multidistrict Litigation is working to assemble all the class action commission lawsuits from different federal districts to consolidate into one common ruling. (See https://www.jpml.uscourts.gov/about-panel) Since the NAR settlement is so wide-ranging and nearly-all-encompassing, it puts in place a set of arrangements that may be solidified by the MDL Panel across the country. While the NAR settlement (once approved) essentially puts to bed many of the lawsuits with parties that are covered by it (associations, MLS, some brokerages), a ruling with the MDL Panel would likely end the copy-cat commission lawsuits once and for all (at least the ones with the same parties and the same arguments!).
The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.
Recent and Popular Articles From Our Blog:
• May 10, 2022 – Using the 1031 to Reinvest
• August 23, 2022 – Understanding Private Road Maintenance
• January 10, 2023 – Website Accessibility Requirements
• February 14, 2023 – Understanding Mediation and Arbitration in RPA
• April 4, 2023 – Understanding Liquidated Damages in a Home Purchase Contract
• June 20, 2023 – Understanding the Lis Pendens
• June 27, 2023 – Do’s and Don’ts Guidelines to a Dental Practice Transition