Settlement Agreement Terms in Commission Lawsuits Approved by Court
By Trey Van Dyke
November 21, 2023
If you’re keeping up with our coverage of the line of commission lawsuits across the country, you’ll recall that several national real estate companies settled with the class-action plaintiffs a month-or-so before trial commenced in the first case. The parties that did not settle: National Association of Realtors®, Keller Williams, and Berkshire Hathaway HomeServices, were hit with a whopping $1.8 billion to potentially $5.4 billion jury award in favor of the plaintiffs. This was the Burnett trial. The Moehler trial starts in mid-2024, and the same law firm representing the class-action plaintiffs just opened another case in Gibson that attempts to ropes-in several other national real estate companies. If you’re scratching your head wondering why all these lawsuits are going after NAR and national brokers at the same time, here’s a brief background:
This is not new, historically speaking. Like it or not, the federal government has had its targets set on what it deems “commission price fixing” for several decades. The history of this saga up to the 1980s is detailed in a comprehensive industry report from the Federal Trade Commission (FTC). If you’re desperate for a light coffee table reader I would look elsewhere, but alas, here it is: FTC Staff Report: The Residential Real Estate Brokerage Industry (The Butters Report), found on Google Books: https://tinyurl.com/6xu6fj78. Surprisingly, the 1983 report contains some of the same language used in the recent lawsuits. Relying on arguments that real estate was not “interstate commerce,” (a legal battle lost in time; See Wickard v. Filburn, Gonzales v. Raich) and therefore not subject to the Sherman Anti-Trust Act, brokers across the country were using a set fee schedule prior to the 1950s. After the US v. NAREB decision, NAR stopped requiring the set fee schedule and merely suggested the same fee schedule. After growing federal tensions, NAR issued guidance to local boards and MLS’ to not “fix, control, recommend, suggest or maintain commission rates or fees for services rendered by Members.” (NAR “Fourteen Point Policy,” November 15, 1971). A series of criminal and civil actions against brokers for “price-fixing” in some way has continued to the 2020s. It seems the federal government’s interest in the topic directly correlates with home values. In 2020, the Department of Justice (DoJ) went after NAR alleging, you guessed it, that NAR’s policies resulted in a lessening of competition to the detriment of home buyers. The lawsuit was settled, but then the DoJ “withdrew” the settlement in July 2021 when the Administration changed hands and the case is currently under appeal. The DoJ has filed amicus briefs in support of every civil litigant that has gone after NAR, including in the three class-action lawsuits mentioned above.
As you can see, the three class-action lawsuits are just the tip of the iceberg in the long-running history of the commission competition debate. While the damage amounts in the trial are indeed attention grabbing, the settlement agreements recently approved by the court allow us to peer into what future practice and policy changes might look like. As a part of the September settlements, Anywhere Real Estate (consisting of the brands: Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, Sotheby’s…) and Re/Max agreed to implement real estate practice changes throughout their franchises and agents. These will likely be the foundation for policy changes, by region, throughout the country. A summary of practice changes in the settlement:
• Brokerages and their agents are prohibited from claiming buyer agent services are free.
• Brokerages must include listing broker’s offer of compensation for prospective buyers’ agents as soon as possible in each active listing, consistent with MLS rules.
• Brokerages and their agents are prohibited from using technology, or manually sorting listings by offers of compensation, unless requested by the client.
• Brokerages will not require agents to belong to NAR or follow the NAR Code of Ethics Handbook or MLS Handbook.
• Brokerages will require agents to clearly disclose commissions are not set by law and are fully negotiable.
• Brokerages will eliminate minimum commission requirements, express or implied.
Given the significant damages awarded at trial in Burnett, it would not be surprising if other national brokerages settle in Moehrl and Gibson. Therefore, the practice changes in these settlements may become the de facto policy changes to the industry, forced by acceptance of the largest national brands. As we highlighted in a previous blog on the subject, regardless of the outcome, buyer agent commissions look to become a more negotiable aspect of contract negotiations than they currently are and of course, there will always be more disclosures.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or 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
November 21, 2023
If you’re keeping up with our coverage of the line of commission lawsuits across the country, you’ll recall that several national real estate companies settled with the class-action plaintiffs a month-or-so before trial commenced in the first case. The parties that did not settle: National Association of Realtors®, Keller Williams, and Berkshire Hathaway HomeServices, were hit with a whopping $1.8 billion to potentially $5.4 billion jury award in favor of the plaintiffs. This was the Burnett trial. The Moehler trial starts in mid-2024, and the same law firm representing the class-action plaintiffs just opened another case in Gibson that attempts to ropes-in several other national real estate companies. If you’re scratching your head wondering why all these lawsuits are going after NAR and national brokers at the same time, here’s a brief background:
This is not new, historically speaking. Like it or not, the federal government has had its targets set on what it deems “commission price fixing” for several decades. The history of this saga up to the 1980s is detailed in a comprehensive industry report from the Federal Trade Commission (FTC). If you’re desperate for a light coffee table reader I would look elsewhere, but alas, here it is: FTC Staff Report: The Residential Real Estate Brokerage Industry (The Butters Report), found on Google Books: https://tinyurl.com/6xu6fj78. Surprisingly, the 1983 report contains some of the same language used in the recent lawsuits. Relying on arguments that real estate was not “interstate commerce,” (a legal battle lost in time; See Wickard v. Filburn, Gonzales v. Raich) and therefore not subject to the Sherman Anti-Trust Act, brokers across the country were using a set fee schedule prior to the 1950s. After the US v. NAREB decision, NAR stopped requiring the set fee schedule and merely suggested the same fee schedule. After growing federal tensions, NAR issued guidance to local boards and MLS’ to not “fix, control, recommend, suggest or maintain commission rates or fees for services rendered by Members.” (NAR “Fourteen Point Policy,” November 15, 1971). A series of criminal and civil actions against brokers for “price-fixing” in some way has continued to the 2020s. It seems the federal government’s interest in the topic directly correlates with home values. In 2020, the Department of Justice (DoJ) went after NAR alleging, you guessed it, that NAR’s policies resulted in a lessening of competition to the detriment of home buyers. The lawsuit was settled, but then the DoJ “withdrew” the settlement in July 2021 when the Administration changed hands and the case is currently under appeal. The DoJ has filed amicus briefs in support of every civil litigant that has gone after NAR, including in the three class-action lawsuits mentioned above.
As you can see, the three class-action lawsuits are just the tip of the iceberg in the long-running history of the commission competition debate. While the damage amounts in the trial are indeed attention grabbing, the settlement agreements recently approved by the court allow us to peer into what future practice and policy changes might look like. As a part of the September settlements, Anywhere Real Estate (consisting of the brands: Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, Sotheby’s…) and Re/Max agreed to implement real estate practice changes throughout their franchises and agents. These will likely be the foundation for policy changes, by region, throughout the country. A summary of practice changes in the settlement:
• Brokerages and their agents are prohibited from claiming buyer agent services are free.
• Brokerages must include listing broker’s offer of compensation for prospective buyers’ agents as soon as possible in each active listing, consistent with MLS rules.
• Brokerages and their agents are prohibited from using technology, or manually sorting listings by offers of compensation, unless requested by the client.
• Brokerages will not require agents to belong to NAR or follow the NAR Code of Ethics Handbook or MLS Handbook.
• Brokerages will require agents to clearly disclose commissions are not set by law and are fully negotiable.
• Brokerages will eliminate minimum commission requirements, express or implied.
Given the significant damages awarded at trial in Burnett, it would not be surprising if other national brokerages settle in Moehrl and Gibson. Therefore, the practice changes in these settlements may become the de facto policy changes to the industry, forced by acceptance of the largest national brands. As we highlighted in a previous blog on the subject, regardless of the outcome, buyer agent commissions look to become a more negotiable aspect of contract negotiations than they currently are and of course, there will always be more disclosures.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have received a letter threatening legal action or 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